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The Common Agricultural Policy. ( c ) J.A Kigozi, 2012 GSIS. Korea Univ. Presentation outline. History and Principles of CAP Common Market Organizations (CMOs) Financing CAP CAP shocks External Pressure CAP Reforms New emerging issues. History and Principles.

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The Common Agricultural Policy

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The common agricultural policy

The Common Agricultural Policy

( c ) J.A Kigozi, 2012

GSIS. Korea Univ


Presentation outline

Presentation outline

  • History and Principles of CAP

  • Common Market Organizations (CMOs)

  • Financing CAP

  • CAP shocks

  • External Pressure

  • CAP Reforms

  • New emerging issues

( c ) J.A Kigozi, 2013


History and principles

History and Principles

  • Article 39 of the Rome Treaty laid down objectives of CAP but came into force in 1962

  • The principles were,

    • Market Unity

    • Community preference

    • Financial solidarity

  • Common Market Organizations (CMOs)

  • Reasons? (free trade, erect barriers to the outside world and protect farmers’ revenue)

( c ) J.A Kigozi, 2013


Cmo complementary tools

CMO Complementary Tools

  • Guaranteed price

    • Vulnerability to natural disasters and dependence on climatic conditions made public intervention necessary to guarantee descent living conditions for farmers.

    • Prices were not determined by forces of dd and ss but rather fixed centrally

    • What was the effect of such a system?

    • Was it a political compromise??????

( c ) J.A Kigozi, 2013


Cmo cont

CMO cont.

  • Public intervention system

    • Was to be adopted if there would be excessive internal supply that would lead to lower prices (Buffer stocks)

    • What is the ultimate truth about this system?

  • Variable levies at the Community’s border

    • Just incase prices fixed within the EC were higher than the imports

    • Produce could only be allowed in the Community only if its price was or above the fixed EC price

    • Trade diversion??

( c ) J.A Kigozi, 2013


Financing the cap

Financing the CAP

  • A fund to cover CAP financing was established (EAGGF)

  • Comprised of 2 parts

  • Guarantee; costs involved with market system like export refunds

  • Guidance; for funding structural policies

  • Proportion of the budget on agriculture has decreased especially since 1980s from 65.1% in 1986 to 42.3% in 2004

( c ) J.A Kigozi, 2013


Need for cap reforms

Need for CAP Reforms

  • CAP shifted from its initial objectives in 1970s (food mountains, wine lakes)

  • CAP became more costly to operate

  • Deterred development of other priorities hence a major concern for European policy makers and the need for a reform was inevitable

( c ) J.A Kigozi, 2013


Cap shocks

CAP Shocks

  • 1970s and 1980s

    • Guaranteed ceilings (for crops in 1981, milk quotas in 1984, MGQs for cereals in 1987-8

    • Guaranteed high prices

  • What was the effect of this?

  • 1990s; Cutting Institutional prices to restore role of market forces

( c ) J.A Kigozi, 2013


External pressure

External Pressure

  • 1986; GATT ‘Uruguay Round’ opened and for the first time, negotiations included agriculture.

  • Main players were USA and the Cairns group (14 major agricultural exporters) and were on the offensive

  • To U.S, CAP was a system which allowed European farmers to eschew competition with rest of the world, thereby creating trade distortions for producers in the non EU countries

    • They took a decision not to negotiate on other aspects of the Round until the agricultural issue was resolved

( c ) J.A Kigozi, 2013


Cap reforms

CAP Reforms

  • Commission delivered its radical CAP reform proposal to the Agricultural Council in Feb 1991

  • Issues:

    • Partly replace system of price support with system of direct support to farmers or individual direct payments

    • Sliding scale of competition (size of farm)

  • Agreed by the Council in May 1992

  • Not so much a hustle for German e.g. had important interests in non-agricultural part of the negotiations

( c ) J.A Kigozi, 2013


Buying time

Buying time?

  • Although political decision to reform the CAP was taken by the Heads of States, negotiations on precisely how the reform would be implemented took place in the Agricultural Council over a period of 18 months

  • Further CAP reform in 1999

( c ) J.A Kigozi, 2013


Food for thought

Food for thought!

  • In your opinion, which is the best way to reform CAP?

  • My opinion: Discard CAP completely

  • Why?

  • 'The way to build lasting economic growth [in Africa] is for Europe to end the CAP.' Sir Digby Jones, former Chairman, CBI

( c ) J.A Kigozi, 2013


New emerging issues

New emerging Issues

  • Since 2000, there is the Rural Development Policy, also known as the "second pillar" of the CAP.

  • The 2003 CAP reform involved a major strengthening of rural development policy by reducing direct payments for bigger farms and transferring the funds into rural development measures (modulation).

  • European strategic guidelines for rural development were set out

    in February 2006.

  • Rural Development policy was strengthened to help rural areas respond to economic, social and environmental issues of the 21st century.

  • Rural Development policy for the period 2007-2013 will be based on 3 themes or axis ,11% of the total EU budget is today allocated among these three main areas,

( c ) J.A Kigozi, 2013


The common agricultural policy

Experience of the Leader Community Initiative, aims at implementing local

strategies for rural development through local public-private partnerships.

( c ) J.A Kigozi, 2013


First axis

First axis

  • Focuses on improving the competitiveness of the farm and forestry sector through;

    • support for restructuring,

    • Development and innovation.

( c ) J.A Kigozi, 2013


Second axis

Second Axis

  • Concerns the improvement of the environment and the countryside through;

    • Support for land management

    • Helping to fight climate change.

      Such projects could for example concern preserving water quality, sustainable land management, planting trees to prevent erosion and floods.

( c ) J.A Kigozi, 2013


Third axis

Third Axis

  • Concerns improving the quality of life in rural areas and encouraging diversification of economic activity.

  • The policy also provides support to the Leader rural development methodology, under which Local Action Groups design and carry out local development strategies for their area.

  • Member States distribute "second pillar" funds through Rural Development Programme actions.

( c ) J.A Kigozi, 2013


Cap arguments

CAP Arguments

  • The EU must look after its farmers because they help protect the countryside. (?)

  • The free market is unstable. Without intervention prices would fluctuate and farmers would not be able to respond to consumer demand. (?)

( c ) J.A Kigozi, 2013


Against

Against

  • Resources are best allocated through a free market: CAP makes food more expensive in the EU than it need be.

  • The CAP increases poverty in poor countries by competing unfairly with local farmers. (Dumping)

  • The CAP demands far too high a budgetary contribution to support only a small minority of EU businesses.

  • Processing farmers' CAP payments is expensive (in 2009, the average cost of processing an SFP claim in the UK was £742, even for payouts as small as £5).

( c ) J.A Kigozi, 2013


Conclusion

Conclusion

  • CAP is one of the most controversial European Union policies. It initially sought to increase agricultural productivity in the EU and secure availability of food supplies during the Cold War.

  • Its aims have now changed to protecting agriculture throughout the EU by controlling prices and levels of production and by subsidizing the rural lifestyle in order to safeguard the countryside.

  • Several attempts have been made to reform the CAP. However, there has been only limited success in reducing its cost. It has been a cause of controversy not only because of its huge cost as a proportion of the EU budget, but also because it is seen as an unfair way of protecting European agriculture from overseas competition when farming contributes relatively little to EU GDP.

( c ) J.A Kigozi, 2013


Eu should discard cap for a better tomorrow

EU should discard CAP for a better Tomorrow

Thank you for agreeing with me.

( c ) J.A Kigozi, 2013


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