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CAP. Treaty of Rome : Article 39 to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour; to ensure a fair standard of living for the agricultural Community; to stabilise markets;

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  1. CAP Treaty of Rome: Article 39 • to increase productivity, by promoting technical progress and ensuring the optimum use of the factors of production, in particular labour; • to ensure a fair standard of living for the agricultural Community; • to stabilise markets; • to secure availability of supplies; • to provide consumers with food at reasonable prices.

  2. CAP CAP started as simple price support policy in 1962

  3. EU switches from net food import to exporter in most products

  4. CAP Reforms • 1992: MacSharry Reforms • Basic idea: CUT PRICES supports to near world-price level & COMPENSATE farmers with direct payments • June 2003 Reforms • Implementation 2004-2007 • Similar to MacSharry reforms in spirit • A new reform in 2011?

  5. The key elements of reform 2003 • DECOUPLING: The introduction of a .single payment. scheme for EU farmers where the size of the payment is not related to production. In agro-jargon, such payments are referred to as decoupled. since they are not linked to production. • CROSS-COMPLIANCE: To get the single payment farmers must met certain conditions that aim to improve the CAP’s environmental impact, European food safety, and animal welfare; these are called “cross-compliance” conditions. • MODULATION AND RURAL DEVELOPMENT: A modest reduction of single payments will be phased in over next few years in order to finance more spending on “rural development”. The reduction, which rises to 5% in 2007, is applied to all farms regardless of size, although the very smallest farms and very remote farms are exempt. • PRICE FLOOR CUTS WITH COMPENSATION: the price floors are lowered but farmers are compensated by higher direct payments (e.g., butter and rice);- these are MacSharry-like.

  6. The key elements of the new reform • Minor adjustments in support mechanisms in other sectors; the general principle of guaranteed price floors is maintained for the big-budget items (e.g. wheat), but some of the miscellaneous subsidies are rolled into the single payment. • One of the most distorted sectors, sugar, is left completely unreformed.

  7. Evaluation of the today’s CAP • Supply problems & food “mountains” • Left figure: massive shift to direct payments • Price cut reduced EU buying of food: right figure shows important drop in EU storage of food • EU dumping of food on world market also dropped.

  8. Farm incomes & CAP support inequity • Reformed CAP (post MacSharry) support still goes mostly to big, rich farmers • payments intended to compensate, so inequity continued • Half the payments to 5% of farms (the largest) • Half the farms (smallest) get only 4% of payments • Recent studies show that only about half of these payments go to farmers • Rest to non-farming landowners and suppliers of agricultural inputs (seed, fertilizers, agri-chemicals, etc.)

  9. CAP support inequity

  10. Future challenges • Eastern Enlargement • Number of farms rise from 7 million to 30 million • Farmland rise from 130 mill hect to 170 mill

  11. Competition policy The Community rules on competition are laid down by Articles 81 to 89 of the EC Treaty. • Rules applying to undertakings, taking as a legal basis Articles 81 and 82; • Rules applying to state aid, taking as a legal basis Articles 88 and 89; • Provisions applying to specific sectors, on sectors of the economy partially or wholly excluded from the scope of application of the general Community rules on competition; Article 81 (1) of the EC Treaty (formerly Article 85(1)) prohibits agreements and concerted practices between firms which "may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market".

  12. Competition policy Certain types of agreement are prohibited almost without exception. • horizontal or vertical agreements that fix prices directly or indirectly; • agreements on conditions of sale; • agreements that partition market segments, concerning price reductions, for example, or seeking to prohibit, restrict or, on the contrary, promote imports or exports; • agreements on production or delivery quotas; • agreements on investments; • joint sales offices; • market-sharing agreements; • agreements conferring exclusive rights to public service contracts; • agreements leading to discrimination against other trading parties; • collective boycotts; • voluntary restraints (agreements not to engage in certain types of competitive behaviour).

  13. Competition policy Article 81(3) (formerly Article 85(3)) lays down conditions under which certain types of agreement may be exempted from the general prohibition in Article 81(1). • "block exemption" regulations. For example, for certain categories of vertical agreement, (supply or distribution agreements or on motor vehicle distribution agreements); horizontal agreement (technology transfer agreements,specialisation agreements ,research and development agreements ),insurance industry .

  14. Competition policy Abuse of a dominant position • Article 82 of the Treaty (formerly Article 86) "Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States". • Article 82 does not provide for individual or block exemptions • A dominant position is a situation of economic power held by a firm which allows it to hinder effective competition in the relevant market. It puts the firm in a position to exert considerable influence on the conditions in which competition is to develop, and to act without having to take that into account.

  15. Classification of industries with respect to merger regulation

  16. Market equilibrium

  17. STATE AID Article 87 of the Treaty (formerly Article 92) "any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market". • Any advantage granted by the state or through state resources is considered to be state aid where: • it confers an economic advantage on the recipient; • it is granted selectively to certain firms or to the production of certain goods; • it could distort competition; and • it affects trade between Member States.

  18. STATE AID Article 87(2) and (3) (formerly Article 92(2) and (3)) provides for a number of exceptions. • The following are compatible with the internal market: • state aid having a social character, granted to individual consumers, provided that it is granted without discrimination related to the origin of the products concerned; • aid to make good the damage caused by natural disasters or exceptional occurrences; • aid granted to areas of Germany affected by the division of the country. • The Commission may also declare the following to be compatible with the internal market: • aid to promote the development of certain activities or regions; • aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State; • aid to promote culture and heritage conservation; • other categories of aid specified by the Council.

  19. STATE AID Based on Article 88 of the Treaty (formerly Article 93), a procedural regulation on state aid provides that all aid measures or schemes must be notified to the Commission and approved by it before being implemented. Substantial progress made in reducing the general level of state aid overall state aid in the European Union fell by over 28% between 1997 and 2000

  20. Subsidies effect in the duopoly market

  21. EU Regional Policy • For historical reasons, EU has five “Funds”, • four “Structural Funds”, and • Spent in any qualified region • “Cohesion Fund”. • Spent only in poor Funds work together under overall strategy • Many programmes, initiatives, and objectives, BUT over 90% is spent on three priority “objectives”

  22. 3 Objectives • Objective 1 (about 70% of structural spending). • spending on basic infrastructure and production subsidies in less developed regions • generally defined: regions with incomes less than 75% of the EU average • Nordic exceptions (low population density) • There are about 50 “objective 1 regions”; they have about 20% of the EU population. • Objective 2 (about 10% of structural spending). • projects in regions whose economies are specialised in declining • coal mining, fishing, steel production, etc. • spending should support economic and social “conversion” • About 18% of the Union's population lives in ‘Objective 2” regions. • Objective 3 (about 10% of the funding). • measure to modernise national systems of training and employment promotion.

  23. Impact of 2004 Enlargement • New members are much poorer than EU15 • Difficulties • Cost of structural spending could rise substantially • 10 new poor nations make some poor regions in EU15 look relatively rich • Pushes them above 75% of EU25 average • Political power in Council likely to shift spending priorites

  24. Impact of 2004 Enlargement • Some regions that will pushed above 75% of average will lose Objective 1 status • Some, like northern Finland and Sweden are unaffected • Low pop density criteria • All of 2004 entrants have less than 75% of EU25 average • Except Cyprus

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