CAP and the Eastern CAP and the Eastern EnlargementEnlargement

Presented by: Presented by: Tanya ObushtarovaTanya Obushtarova

Nadya Petrova Nadya Petrova Vera ShopovaVera Shopova

What is CAP, in a nutshell?What is CAP, in a nutshell? It was introduced in 1957 It was introduced in 1957 by the Rome Treatyby the Rome Treaty What its founders had in mind was to:What its founders had in mind was to:

increase agricultural productivity increase agricultural productivity

ensure a fair standard of living for farmersensure a fair standard of living for farmers

stabilize agricultural marketsstabilize agricultural markets

ensure availability of food suppliesensure availability of food supplies

ensure that consumers pay fair prices for ensure that consumers pay fair prices for agricultural productsagricultural products

CAP developmentCAP development Impressive introduction: 80% of the EU budget and the Impressive introduction: 80% of the EU budget and the

‘blessings’ of the price-support system‘blessings’ of the price-support system Pressure for reforms:Pressure for reforms:

Market interventions - purchases of the excess supply, storage Market interventions - purchases of the excess supply, storage and export subsidies to EU member states. and export subsidies to EU member states.

Direct payments - subsidies per hectare or per animal at the Direct payments - subsidies per hectare or per animal at the intervention price level (MacSharry 1992) intervention price level (MacSharry 1992)

Compensation for the declining market support payments Compensation for the declining market support payments (Agenda 2000)(Agenda 2000)

Single payment scheme or ‘decoupling’ Single payment scheme or ‘decoupling’ - - Fischer reform Fischer reform (2003) (2003)

Rural development (2004)Rural development (2004)

The change in the distribution of CAPThe change in the distribution of CAP

CAP and estimated costs of CAP and estimated costs of enlargementenlargement

Costs lower than initially expected:Costs lower than initially expected: Projected costs before Enlargement €10 and €15 billion Projected costs before Enlargement €10 and €15 billion Incurred costs: €9 to €13 billion annuallyIncurred costs: €9 to €13 billion annually

2007-2013, the Commission proposed €88.75 billion 2007-2013, the Commission proposed €88.75 billion for the new single Rural Development Fund – just for the new single Rural Development Fund – just enough to cover rural development and market enough to cover rural development and market support expendituresupport expenditure

Difficulty to finance Direct payments – modulation Difficulty to finance Direct payments – modulation payments systempayments system

CAP ReformsCAP Reforms MacSharry (1992) – intervention price MacSharry (1992) – intervention price

reductionreduction Agenda 2000- direct payments as a Agenda 2000- direct payments as a

compensation for price reductioncompensation for price reduction Fischer reform (2003) Fischer reform (2003) ‘‘De-coupling’De-coupling’Quantity control – quotasQuantity control – quotasFrom a direct payments system to a single From a direct payments system to a single

payment schemepayment scheme

Fischer reform 2003Fischer reform 2003

De-coupling: partial subsidy distributed by De-coupling: partial subsidy distributed by acre of arable land not by productionacre of arable land not by production

Reduction of supply surplus and Reduction of supply surplus and environmental pollutionenvironmental pollution

Reduction of production leads to higher prices Reduction of production leads to higher prices in NMS and competitive disadvantagein NMS and competitive disadvantage

De-coupling De-coupling continuationcontinuation……

Direct aids to farmers from national budgets to Direct aids to farmers from national budgets to compensate for the incurred losses (restricted compensate for the incurred losses (restricted to 30% of EU subsidy) to 30% of EU subsidy)

freedom in choosing in which part of the freedom in choosing in which part of the country to concentrate the national ‘coupling’ country to concentrate the national ‘coupling’ subsidiessubsidies

Cross Compliance policyCross Compliance policy

Eastern Enlargement is a potential threat to Eastern Enlargement is a potential threat to environment if surpluses aren’t reduced environment if surpluses aren’t reduced

Direct CAP subsidies closely related to Direct CAP subsidies closely related to environmental protection, food safety, animal environmental protection, food safety, animal health and welfare health and welfare

CAP direct payments to be reduced or denied to CAP direct payments to be reduced or denied to farmers who don’t comply with the farmers who don’t comply with the requirementsrequirements

2 year grace period for NMS to adapt 2 year grace period for NMS to adapt

Financial DisciplineFinancial Discipline

Established to keep CAP spending within Established to keep CAP spending within Budget allocation up to 2013 – especially for Budget allocation up to 2013 – especially for market supportmarket support

Excess expenditures – safety margin of €300 Excess expenditures – safety margin of €300 million = reduction of direct paymentsmillion = reduction of direct payments

keep prices low and reduce CAP inefficiencykeep prices low and reduce CAP inefficiency keep overproduction and surplus downkeep overproduction and surplus down

Rural DevelopmentRural Development

Transfer of funds from direct payments to Transfer of funds from direct payments to rural developmentrural development

NMS benefit the most of itNMS benefit the most of it Development of rural areasDevelopment of rural areas Renovation of agricultural sectorRenovation of agricultural sector Access to information and exchange of good Access to information and exchange of good

practices practices Direct payments reduced and now subject to Direct payments reduced and now subject to

strict regulations – single farm payments strict regulations – single farm payments

Some absurdities about CAPSome 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

Butter mountains have melted away, but what of the Butter mountains have melted away, but what of the future of agriculture in Europe?future of agriculture in Europe?

Take a look at the headlines:Take a look at the headlines:

CAP- ‘the single biggest CAP- ‘the single biggest impact on the European impact on the European environment, our environment, our landscape, our policy landscape, our policy towards the non-towards the non-industrialized world and industrialized world and the amount of money in the amount of money in our pockets’ our pockets’

Listen to Blair:Listen to Blair:

CAP-an absurdity: CAP-an absurdity: “40% of the EU budget “40% of the EU budget goes on agriculture but goes on agriculture but it employs only 5% of it employs only 5% of the people”the people”““an outdated, irrelevant an outdated, irrelevant and unfair system of and unfair system of subsidies for a special subsidies for a special interest group interest group (farmers)”(farmers)”

Implications to EU-10Implications to EU-10

The EU-15 initial stance: exclude the NMS from the The EU-15 initial stance: exclude the NMS from the direct payments (to compensate farmers for price direct payments (to compensate farmers for price decreases due to market liberalization; farm prices in decreases due to market liberalization; farm prices in CEEC-lower than in the West, so the extension of the CEEC-lower than in the West, so the extension of the CAP would result in price rises, not drops)CAP would result in price rises, not drops)

The compromise: EE farmers-25% of the levels of The compromise: EE farmers-25% of the levels of direct payments to WE farmers, that share to rise direct payments to WE farmers, that share to rise gradually to 100% by 2013gradually to 100% by 2013

The unknowns: world prices for farm goods and The unknowns: world prices for farm goods and future decisions on of CAP reform (Doha world trade future decisions on of CAP reform (Doha world trade talks and EU budget review in 2008-09)talks and EU budget review in 2008-09)

Implications continue…Implications continue…

Some food products, such as sugar, became more Some food products, such as sugar, became more expensive as the CAP was fully extended to the NMSexpensive as the CAP was fully extended to the NMS

The EU 2007-13 budget still allocates half of all The EU 2007-13 budget still allocates half of all structural funds to richer EU countriesstructural funds to richer EU countries

The EU-15 to cap the flow of funds to NMS at 4% of The EU-15 to cap the flow of funds to NMS at 4% of their respective GDPs because the newcomers’ lack their respective GDPs because the newcomers’ lack of capacity to ‘absorb’ larger amountsof capacity to ‘absorb’ larger amounts

NMS will not receive the same level of EU farm NMS will not receive the same level of EU farm subsidies as France, Denmark or Italy until 2013subsidies as France, Denmark or Italy until 2013

Current CAP-not to the advantage of the Current CAP-not to the advantage of the NMSNMS

Share of non-direct payments (rural development Share of non-direct payments (rural development funds) remains small at 10-15% of total CAP funds) remains small at 10-15% of total CAP spendingspending

Disproportionate distribution of benefits to large Disproportionate distribution of benefits to large agricultural enterprises: 80% of all CAP money goes agricultural enterprises: 80% of all CAP money goes to 20% of the biggest farmersto 20% of the biggest farmers

The average farm size in the NMS is much smaller The average farm size in the NMS is much smaller than in the EU-15than in the EU-15

Most NMS farms are subsistence ones and are too Most NMS farms are subsistence ones and are too small to qualify for any supportsmall to qualify for any support

‘‘Taking from the poor and giving to the rich’ Taking from the poor and giving to the rich’ criticisms and resolutionscriticisms and resolutions

Despite some last-minute amendments, the Despite some last-minute amendments, the impression persists that the old EU was trying impression persists that the old EU was trying to achieve enlargement ‘on the cheap’to achieve enlargement ‘on the cheap’

The NMS will be able to ‘top up’ both The NMS will be able to ‘top up’ both regional aid (through more generous state regional aid (through more generous state subsidies to the poorest regions) and CAP subsidies to the poorest regions) and CAP payments (through co-financing direct payments (through co-financing direct payments from their national budgets)payments from their national budgets)

NMS payments to the English nobility NMS payments to the English nobility

Richard E. Baldwin, source EurostatRichard E. Baldwin, source Eurostat

Pressing issues that need to be resolvedPressing issues that need to be resolved

CAP serves neither consumers nor small farmersCAP serves neither consumers nor small farmers It produces negative externalities to the environmentIt produces negative externalities to the environment The EU export subsidies, literally, annihilate The EU export subsidies, literally, annihilate

industries in the Caribbean, Brazil and other banana-industries in the Caribbean, Brazil and other banana-type countriestype countries

The EU grain dumping has devastated the poorer The EU grain dumping has devastated the poorer parts of the worldparts of the world

In spite of the current reforms the EU failed on issues In spite of the current reforms the EU failed on issues such as fair trade, sustainability and value for moneysuch as fair trade, sustainability and value for money

What lies ahead?What lies ahead?

More enlargement and more trade liberalization means more More enlargement and more trade liberalization means more pressure to further reform CAPpressure to further reform CAP

The battle over CAP might turn to a battle over the future of The battle over CAP might turn to a battle over the future of EuropeEurope

The system of fixed price undermines EU active role in the The system of fixed price undermines EU active role in the WTO and in the economic development of poor countriesWTO and in the economic development of poor countries

The economic challenges of globalization cannot be met The economic challenges of globalization cannot be met effectively under the current budgeteffectively under the current budget

The EU must set its priorities on environmental protection and The EU must set its priorities on environmental protection and rural developmentrural development

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