The Common Agricultural Policy

1. The Common Agricultural Policy ( c ) J.A Kigozi, 2012 GSIS. Korea Univ

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. Experience of the Leader Community Initiative, aims at implementing local strategies for rural development through local public-private partnerships. ( c ) J.A Kigozi, 2013

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. EU should discard CAP for a better Tomorrow Thank you for agreeing with me. ( c ) J.A Kigozi, 2013