The EU Common Agricultural Policy (CAP) Flavio Coturni Head of Unit - Agricultural Trade Policy...

The EU The EU Common Agricultural Policy (CAP)Common Agricultural Policy (CAP)

Flavio Coturni Head of Unit - Agricultural Trade Policy AnalysisDG for Agriculture and Rural DevelopmentEuropean Commission

Minsk, Belarus 3 December 2009 2

Overview

The CAP: a continued reform process

The cumulated effects of the various reforms

What about the future?


Main drivers of reform

Reduce surplus production Control expenditure Maintain rural population Address societal concerns (food safety,

environment, animal welfare) Enhance market orientation Improve competition on the world market


MacSharry Reform, 1992Objectives:

o Improve competitivenesso Stabilise markets, income and expenditureo Diversify productiono Protect the environnement

Measures taken:Price cutsCompulsory set-aside - Full compensation for loss of incomeAccompanying measures (agri- environment programmes,

afforestation, early retirement, diversification)


Agenda 2000

Objectives:o Improve competitiveness o Rural Development Policyo Facilitate the enlargement of the EU

Measures taken: Further price cuts (beef -20%, cereals -15%) Partial compensations = direct payments A comprehensive RD policy Ceiling on agricultural expenditure


DegressivityModulation

Strengthening the 2nd pillar

Adjustment of intervention levels

Decoupling of direct payments

Consolidation of the CAP within strict limits of financial discipline

Better balance of support

Enforcing standards (environment, food

safety, animal welfare)

Improving the transfer- efficiency of direct

payments

Reinforcing farmers’ market orientation and

entrepreneurial role

Cross-compliance

CAP Reform 2003 - Objectives and measures


CAP Reform 2003: Complementary Reforms 2004

Cotton, hops, tobacco, and olive oil

Continues the approach of reducing support prices by replacing them with decoupled direct payments.

CAP Reform 2003: Complementary Reforms 2005

Sugar

Price cut (white sugar -36% over 4 years), partial compensation through decoupled payments (64% of the price cut).


CAP Reform 2003: Complementary Reforms

2007

Fruits and Vegetables

Integration of F&V into the Single Payment Scheme, wide range of tools for crisis management for Producer Organisations, promotion of consumption.

CAP Reform 2003: Complementary Reforms

2007 Wine

Phasing-out expensive market intervention measures and allowing the budget to be used for more positive, proactive measures which will boost the competitiveness of European wines.


CAP Health Check, 2008 Simplifies and better targets direct support to

farmers: more flexibility for MS to re-orientate direct support, assistance to sectors with special problems (Art. 68);

Responds to market opportunities and price crises by removing supply controls: (phasing out milk quotas, abolition of set-aside, market management tools are streamlined and updated);

Strengthen Rural Development to respond to new challenges: increase of modulation by 5% between 2009-2013 for climate change, renewable energy, water management, biodiversity, innovation


A consistent reform process… Reform orientation reflects policy objectives

– to be competitive in world markets and simultaneously meet the highest environmental, food safety , quality and animal welfare standards within dynamic sustainable rural economies

Decisions of reform reflect clear political choice

– continue support for EU agriculture (the “not if but how” question)

– in a manner that meets citizen, taxpayer and consumer needs and expectations and that is the less trade-distorting


…built on sound preliminary analysis

Impact assessment allows to identify the problem, to define the objectives, to develop policy options and to analyse their economic, social and environmental impacts

It ensures collegiality within the Commission (inter-service steering group) and consultation of affected stakeholders


The effects

80% of the expenditure is now paid directly to farmers Farmers are now encouraged to produce in response

to market incentives, not in response to support incentives

Farmers are sanctioned if they do not respect strict standards regarding food safety, plant and animal health, environment, animal welfare (cross-compliance)

Pillar 2 enhances the development of rural areas


The paths of CAP reforms and expenditure…

0

10

20

30

40

50

60

70

19

80

19

81

19

82

19

83

19

84

19

85

19

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19

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19

90

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99

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00

20

01

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02

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03

20

04

20

05

20

06

20

07

20

08

% GDPbillion €

0,0%

0,1%

0,2%

0,3%

0,4%

0,5%

0,6%

0,7%

Export subsidies Market support Direct aidsDecoupled payments Rural development % of EU GDP

EU-10 EU-12 EU-15 EU-25 EU-27


CAP budget cost trend

0

10

20

30

40

1993 2000 2010

billion €

Market measures Area/animal payments (coupled payments)

Single Farm Payment (decoupled payments)

EU-12 EU-15 EU-27


WTO boxes (bn €)

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07e

2007/08

green

blue

amber

AMS Ceiling


Reductions in EU price support Reductions in EU price support ...

Cumulative % reduction in price support

-75

-60

-45

-30

-15

0

Soft wheat Durumwheat

Beef Rice Butter SMPowder

Sugar

...bringing EU prices in line with world prices


EU public stocks

0%

5%

10%

15%

20%

25%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Wheat Beef Butter

(as % of EU production)


0%

5%

10%

15%

20%

25%

30%

35%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

EU-12 up to 1994 EU-15 up to 2004 EU-25 up to 2006, then EU-27

% E

AG

GF

an

d e

xp

ort

s

0,0

2,0

4,0

6,0

8,0

10,0

12,0

Bio

EU

R

Refunds Refunds/exports Refunds/expenditure pillar1

Export refunds, billion € and % of agricultural expenditure and exports


Passing the stress test… A sound policy in turbulent times…


Looking ahead: The CAP should… leave room for farmers to be as market-orientated as

possible; give farmers some kind of safety net; help farms to modernise; help to provide public goods; help to meet various challenges such as climate

change; help to compete in a changing international

environment.


The CAP beyond 2013 Institutional context

– New European Parliament and Commission– Lisbon Treaty– WTO– New financial perspectives

• New priorities for EU budget• Budget for CAP?

General economic context– Changing world Supply and Demand– The impact of the economic crisis– Oil price– Volatility, Food security, climate change


General context: The fundamentals

Growth in consumption is expected to relocate to the developing world.

Other than wheat and coarse grains, production increasingly shifts away from developed countries towards developing countries.


USA real GDP growth rates, year-on-year, %

-3

-2

-1

0

1

2

3

4

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

OECD baseline Global Insight: latest projection (Oct 2009)

Source: OECD-FAO, HIS Global Insight

General context: the economic crisis


Oil price projections, USD/barrel

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

OECD Baseline (Brent crude) Global Insight: latest projection (Refiners' Imports Average, Oct 2009)Source: OECD-FAO, HIS Global Insight

General context: Oil price


US Wheat volatility has increased since 1980

0

10

20

30

40

50

60

70

80

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Perc

en

t

Data source: CME Group

General context: Price volatility


…and in the EU too…

0

10

20

30

40

50

60

70

80

90

se

pt-

98

se

pt-

99

se

pt-

00

se

pt-

01

se

pt-

02

se

pt-

03

se

pt-

04

se

pt-

05

se

pt-

06

se

pt-

07

se

pt-

08

Pe

rce

nt

Data source: MILLING WHEAT #2: 1ST EXPIRATION FUTURE NEARBY - SETL - MARCHE A TERME INTERNATIONALE DE FRANCE (MATIF). In-house calculations.


US Wheat Historical Volatility, Futures Open Interest and VolumeMonthly

0

10

20

30

40

50

60

70

80

January 2000 January 2001 January 2002 January 2003 January 2004 January 2005 January 2006 January 2007 January 2008 January 2009

Vo

lati

lity

(%

)

0

500

1000

1500

2000

2500

3000

Op

en

in

tere

st

an

d v

olu

me (

tho

usan

ds o

f co

ntr

acts

)Futures, open interest Futures, volume Wheat volatility

Data source: CME Group

General context: Speculation?


The CAP beyond 2013: Open questions1. Direct payments

– Income support vs. public goods

– Redistribution within and among Member States

2. Market mechanisms

– Safety net

– Other instruments3. Rural development

– Balance between competition, environmental and rural economy challenges

4. Financing

– Distribution between pillars and areas

– Co-financing


The CAP in one click

http://ec.europa.eu/agriculture/index_en.htm


Thank you for your attention!

The EU Common Agricultural Policy (CAP) Flavio Coturni Head of Unit - Agricultural Trade Policy...

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