Agricultural policy:

Concepts, Goals, Strategies

Structure of the lectureStructure of the lecture Some information Some information Introduction Introduction Basic concepts of economicBasic concepts of economic policypolicy Specifics of agrar policySpecifics of agrar policy Types of agricultural policyTypes of agricultural policy CAP EU: Origin, development,CAP EU: Origin, development, future future

InformationInformationRegarding your essays, I have discussed it with the Foreign Relations Department, and the result is:It is really not necessary to submit it in printed not necessary to submit it in printed formform, but we need to make sure that we got it, if it is sent by e-mail. As there are not so many of you, it is not such a problem.However, as you leave for the study tour on July 22, and as I am out of Prague between July 24-29 (comming back for your examination and graduation), I need to get your essays atat the latest the latest on July 21, 24:00on July 21, 24:00, to be able to evaluate it.Then, I will send a message to the Study Tour managers, that either I have got all, or that some are missing.For the missing ones, the deadline will be July 29, July 29, 8:008:00, but with the explanation of delay

Economic policy in Economic policy in generalgeneral

WWe have already defined e have already defined economyeconomy

It comes from Greek wordsIt comes from Greek words = house= house

= order, rule, = order, rule, managementmanagement

oikosoikos

nomos nomos

Main conceptsMain concepts And what doesAnd what does “policy““policy“

mean ?mean ? polispolis = = town, citytown, city, in ancient , in ancient

Greece also Greece also statestate, because there , because there used to be city statesused to be city states

politespolites = = citizenscitizens politeiapoliteia = = citizenship etc.citizenship etc.

Main ConceptsMain Concepts From the two concepts, From the two concepts, it follows thatit follows that

economic policyeconomic policy should beshould be

the set of the goals and rules the set of the goals and rules serving to the good, and co-serving to the good, and co-formed by, the “inhabitants of formed by, the “inhabitants of

the relevant house “the relevant house “

And because our topic is agricultural And because our topic is agricultural policy,policy,

it means the set of the goals and rules it means the set of the goals and rules serving to the good, and co-formed byserving to the good, and co-formed by

the farmers.the farmers. However, because we have already However, because we have already discussed the role of agriculture in discussed the role of agriculture in

economy and society, we are aware that economy and society, we are aware that it regards all it regards all

““inhabitants of the house “inhabitants of the house “i.e. the whole societyi.e. the whole society

When the main type of general economic policy

has been chosen,it is necessary to consider

main goals in hierarchical main goals in hierarchical orderorder main actors of policy decision main actors of policy decision processprocess time periodstime periods scopescope set of toolsset of tools control and feedback systemcontrol and feedback system

Hierarchy of the Hierarchy of the economic policy objectiveseconomic policy objectives 3 basic 3 basic social social objectivesobjectives freedomfreedom

justicejustice

welfarewelfare

3 basic 3 basic objectives of objectives of economic policyeconomic policy economiceconomic freedomfreedom justice of justice of distributiondistribution economiceconomic stability andstability and efficiencyefficiency

FreedomFreedom

formal, formal, given by legal framegiven by legal frame material, material, connected to the space connected to the space an individual has in the frame of given an individual has in the frame of given economic and social conditionseconomic and social conditions

Economic aspects of freedomEconomic aspects of freedom:disposal possibilities of householdsdisposal possibilities of enterprisesfreedom of forming corporate groups to reach common goals

JusticeJustice

formal,formal, given by formal freedom connected to performance, connected to performance, i.e.i.e. remremuuneration according to neration according to performance, performance, the the same income for the same income for the same laboursame labour equality of chances principle, equality of chances principle, which determines the foregoingwhich determines the foregoingprinciple of just needs, principle of just needs, meaning satisfying the minimum meaning satisfying the minimum needs for everybodyneeds for everybody

CertaintyCertaintyIncluding:Including: social peace - prevention of social peace - prevention of open conflictsopen conflicts economic certainty and economic certainty and stabilitystability certainty of supply in critical certainty of supply in critical situationssituations social certainties of individualssocial certainties of individuals ensured incomes and propertyensured incomes and property reliability of planning for reliability of planning for economic subjects (sure future economic subjects (sure future conditions)conditions)

WelfareWelfare It represents satisfying the It represents satisfying the needs of the individual and needs of the individual and society with material and non-society with material and non-material goodsmaterial goods TheThesese goods include: goods include: income and property of individualincome and property of individual common available goods (culture common available goods (culture etc.)etc.) environmentenvironment household produced goods household produced goods (household labour, child care) (household labour, child care) other immaterial goods (health, free other immaterial goods (health, free time, social relationships)time, social relationships)

Actors of policy decision Actors of policy decision processprocess

NGOs

C

PPI

PPG

Time periods

short-term policies (1-2 years or even less)medium term-policies (3-5 years)long term, perspective policies (over 5 years)permanent policies (general goals )The most usual are medium-term policies, since they correspond with the election periods, but for agriculture they are still too short because of long production cycles.All time- level policies should of course be harmonised and interrelated.

Scope (area) of Scope (area) of economic policyeconomic policy

Of course, economic policies can also cover different spatial areas:

local (not often utilised) regionalregional nationalnational supra-nationalsupra-national (EU etc.) globalglobal (rarely possible)

Set of toolsSet of toolsThe tools are differing with regard to the area of policy, but basically they are of 3 types:

positive (supporting) negative (prohibiting) market (indirect)

And of course combinations of them.

Agrarian Agrarian policypolicy

Agricultural policy is a specific form and part of the complex economic policy of the nations (supra-national of the nations (supra-national unions etc.) aimed at the effective unions etc.) aimed at the effective participation of agrar sector in participation of agrar sector in economic and social development of economic and social development of the given country with respecting the the given country with respecting the specific features of agriculture and specific features of agriculture and food production.food production.Basic questions:Basic questions:

Are these specifics important enough to Are these specifics important enough to justify existence of the specific justify existence of the specific economic policy of agrar sector ?economic policy of agrar sector ?

Is any special agricultural policy necessary ?

No, why ?

Yes, of course !

Possible answers: Possible answers: “NO“NO““ “ “ Who wants to support farmers, let Who wants to support farmers, let him do it as a voluntary charity. …him do it as a voluntary charity. …What would happen with the unused What would happen with the unused agricultural land if agriculture is agricultural land if agriculture is reduced? Nothing tragic, it would be reduced? Nothing tragic, it would be used in another way. What way, it used in another way. What way, it should depend only on the decision of should depend only on the decision of the owners, not on the government, the owners, not on the government, the nation, the party, people or the the nation, the party, people or the like.like.There does not exist anything like our There does not exist anything like our agriculture, our land, our trade agriculture, our land, our trade balance, but only my land, my firm, my balance, but only my land, my firm, my purse. If everybody behaves with purse. If everybody behaves with regard to this, it would be to the regard to this, it would be to the enormous profit of everybody and the enormous profit of everybody and the communism would be long dead.“communism would be long dead.“

From the article “Jsou čeští zemědělci vyděrači nebo hrdinové?“, HN, 2003

Vilém BarákVilém Barák

Possible answers: Possible answers: “YES”“YES”

Mariann Fischer Mariann Fischer BoelBoel Present Present EC EC high high commissary for commissary for agriculture, fishery agriculture, fishery and rural areas and rural areas developmentdevelopment

Franz FischlerFranz FischlerFormer Former EC EC high high commissary for commissary for agriculture, fishery agriculture, fishery and rural areas and rural areas developmentdevelopment

What main categories of What main categories of economic policies can there be economic policies can there be

?? The basic one is the The basic one is the

legal frame legal frame of the economy.of the economy.

With special regard to agriculture, most countries have got a special

Act on Agriculture. E.g. In the CR, it is

the Act on AgricultureAct on Agriculture No.252/97 Coll.No.252/97 Coll.

from September 24, 1997,ammended by the Act No.85/2004 Act No.85/2004

Coll.Coll. from February 19, 2004

Basic types of economic policies with regard to

agriculture Market regulation (liberalisation) of both domestic and foreign trade Policies regarding production factors (land, labour, capital) Food and nutrition policy Environment and sustainable development policies Structural and regional policy Economic integration and its tools Complex short-, medium- and long-term policy of the sector

EU Common Agricultural Policy

Europe’s agricultural policy is determined at the EU level by the governments of Member States and operated by the Member States.

It means that it is the so-called communitary policycommunitary policy

It is aimed at supporting farmers’ incomes while also encouraging them to produce high quality products demanded by the market and encouraging them to seek new development opportunities, such as renewable environmentally friendly energy sources.

Why any common European agricultural policy?

Agriculture and forests cover the vast majority of the territory and play a key role in determining

The health of rural economies as well as the rural landscape.

Europe is both a major exporter and the world’s largest importer of food, mainly from developing countries; it is important that the European farming sector uses safe, clean, environmentally friendly production methods providing quality products to meet consumers’ demands;

The EU farming sector serves rural communities and their sustainability.

THE ORIGINAL CAP The CAP was created in 1957 under the

Treaty of Rome and started operating in 1962. It had its roots in the post-war Western Europe, whose societies had been damaged by years of war, and where agriculture had been crippled and food supplies could not be guaranteed

The emphasis of the early CAP was on encouraging better agricultural productivity so that consumers had a stable supply of affordable food and ensure that the EU had a viable agricultural sector

THE ORIGINAL CAP The CAP is also a form of protectionism

designed to defend European producers from cheaper products outside the EU.

This was done by subsidising agricultural produce but also by the EU deterring imports from outside the EU with a system of import tariffs on one hand and export subsidies on the other.

THE ORIGINAL CAP The CAP offered subsidies and systems

guaranteeing high prices to farmers, providing incentives for them to produce more.

Financial assistance was provided for the restructuring of farming, for example by subsidising farm investment in favour of farm growth and management of technology skills so that they were adapted to the economic and social conditions at the time.

Later on, certain measures were introduced in the form of help for early retirement, for professional training and in favour of less favoured regions.

However,the CAP was very successful in meeting its objective

of moving the EU towards self-sufficiency up to the 1980s. Then, the problems started mounting:

almost permanent surpluses of the major farm commodities, which were exported with the help of subsidies, others stored or disposed of within the EU with more subsidies (“food mountains“)

resulting high budgetary cost distorting some world markets by export subsidies

criticised by the GATT, namely diring the Uruguay Round (1986-1994)

the policy unpopular with consumers and taxpayers non-balanced support of big and small farms increasing concern about the environmental

sustainability of agriculture, namely after the Rio Earth Summit (1992)

The CAP had to change… but the change is slow and

painfulProduction limits, namely milk quotas

introduced in 1983New emphasis placed on environmentally

sound farming MacSharry reform in 1992MacSharry reform in 1992 cutting down

intervention prices – however, not very consequential

““Agenda 2000” reform in 1999Agenda 2000” reform in 1999, deepening the MacSharry reform and including also rural

development policy, ceiling was put on the budget

Because of the farmers Because of the farmers protests, namely in protests, namely in

France, the final decision France, the final decision was a compromisewas a compromise

Reform proposalsReform proposals STATUS QUO Continuation and deepening of the 1992 reform Radccal CAP reform

The “partial changes variant“ won

A A

B A

C A

The reform has two The reform has two areas (pillars)areas (pillars)

HORIZONTAL

HORIZONTAL

AREAAREA

MARKET

MARKET AREAAREA

FRANZ FISCHLERFRANZ FISCHLERthe then EU high

commissionnaire for agriculture, fishery and rural development and

a former minister of agriculture of Austria

• The main idea of the The main idea of the reform is aiming at reform is aiming at sustainable agriculture sustainable agriculture based on the environment based on the environment protection standardsprotection standards

• The European model of The European model of agricultureagriculture..

The European Model of AgricultureThe European Model of Agriculture

Multifunctional, competitive and stabilisingMultifunctional, competitive and stabilising sector based on 4 pillars:sector based on 4 pillars:• 1.1. p pillar:illar: Sustaining the maximum Sustaining the maximum

possible area of agriculture and possible area of agriculture and decreasing differences between regionsdecreasing differences between regions

• 2. 2. ppillar:illar: Development of multifunctional Development of multifunctional agriculture aimed not only at agricultural agriculture aimed not only at agricultural production but also countryside and non-production but also countryside and non-agricultural activities agricultural activities

• 3. pillar:3. pillar: Existence of viable agricultural Existence of viable agricultural enterprisesenterprises

• 4. pillar:4. pillar: Deeper interrelation of Deeper interrelation of agriculture and rural developmentagriculture and rural development

3. CAP reform 3. CAP reform (Mid-Term Check or (Mid-Term Check or

Agenda 2006)Agenda 2006)Passed in June 2003 as a result

of the Conference of Ministers in Luxembourg

It was not planned, but it was accepted after the so-called mid-term evaluation of the Agenda 2000, which found it in need of further improvement

Key elements of the Key elements of the reformed CAPreformed CAP

“decoupling“ "cross-compliance“ “modulation“ “modelling“ mechanism for financial revisions to the market policy of

the CAP

Key Key elementselements

• Limited (abolished) relationship between direct payments and production volume --“decoupling““decoupling“

Direct payments cnditioned by environment protection -

““cross-compliancecross-compliance““

•Complex decrease of direct payments at the differentiation according to farm size and type -degressivity degressivity plus modellingplus modelling

Shift from the stress on agriculture to rural development- modulationmodulation

Key elements of the reformed CAP

• ““decoupling“decoupling“ - a single farm payment (SAPS) for EU farmers, independent from production; limited coupled elements may be maintained to avoid abandonment of production and also temporarily in the new member countries

They are also allowed national “top-ups“ tothe single area payment, as they started at

only 25% level

• "cross-compliance“"cross-compliance“ – the Single Area Payment Scheme (SAPS) is linked to the respect of environmental, food safety, animal and plant health and animal welfare standards, as well as the requirement to keep all farmland in good agricultural and environmental condition .A strengthened rural development policy with more EU money, new measures to promote the environment, quality and animal welfare and to help farmers to meet EU production standards starting in 2005 is introduced

Key elements of Key elements of the reformed CAPthe reformed CAP

Key elements of the Key elements of the reformed CAPreformed CAP

• ““modelling“modelling“ - a reduction in direct payments for bigger farms to finance the new rural development policy. This is not applied to the new members yet, as their average farm size is different

• a mechanism for financial disciplinea mechanism for financial discipline to ensure that the farm budget fixed until 2013 is not overshot

Key elements of the Key elements of the reformed CAPreformed CAP

• revisions to the market policy of the revisions to the market policy of the CAP:CAP:

• symmetric price cuts in the milk sector• reduction of the monthly increments in

the cereals sector by half, the current intervention price will be maintained,

• reforms in the rice, durum wheat, nuts, starch potatoes and dried fodder sectors.

HHow much does the ow much does the CAPCAP cost nowcost now??

The cost of the CAP can be measured in two ways: there is the money paid out of the EU budget, and the cost to the consumer of higher food prices.

The EU will spend 49bn Euros on agriculture in 2005 (46% of the budget), while the OECD estimated the extra cost of food in 2003 at 55bn Euros.

The CAP budget has been falling as a proportion of the total EU budget for many years, as European collaboration has steadily extended into other areas. It has been falling as a proportion of EU GDP since 1985.

HHow much does the ow much does the CAPCAP cost nowcost now??

EU member states agreed in 2002 that expenditure on agriculture (though not rural development) should be held steady in real terms between 2007 and 2013, despite the admission of 10 new members in 2004.

This means that the money paid to farmers in older member states begun to decline after 2007. Overall, they will suffer a 5% cut in the 2007-13 period. .

Agricultural expenditure declined slightly in 2004, as compared with 2003 but has jumped in 2005 as a result of the admission of 10 new members. Under the EU budget 2007-13, it will peak in 2008/2009, in nominal terms, then decline until 2013.

Who gets the money? The structure of recipients is changing The new member states began receiving CAP

subsidies in 2004 at only 25% of the rate they are paid to the older member states. However, this rate is slowly rising and will reach equality in 2013. Poland, with 2.5m farmers, is likely then to be a significant recipient of funds, and so will Romania.

Most of the CAP money goes to the biggest farmers - large agribusinesses and hereditary landowners.

It has been calculated that 80% of the funds still go to just 20% of EU farmers, while at the other end of the scale, 40% of farmers share just 8% of the funds. This should change gradually

Budoucnost SZP

SZP reaguje na výzvy dané nejen ekonomickým vývojem jednotlivých sektorů agrárního trhu, ale také na

impulsy přicházející z vnějšího prostředí.Z toho tedy vyplývá, že bude v budoucnu

docházet k jejímu dalšímu vývoji.

Future of the CAP?Future of the CAP?• The level of regulation will decrease The level of regulation will decrease both because of the internal and external both because of the internal and external pressures.pressures.• With further EU enlargements, the total With further EU enlargements, the total costs of the CAP will have to stay stable or costs of the CAP will have to stay stable or even to decrease, which means less for even to decrease, which means less for the individual recipientsthe individual recipients• The system has to be simplifiedThe system has to be simplified• On the other hand, payments On the other hand, payments (not subsidies) for the environmental(not subsidies) for the environmental roles of agriculture are justified and will roles of agriculture are justified and will become the main part of supportsbecome the main part of supports• Stress wil be put also on rural Stress wil be put also on rural developmentdevelopment

In preparation for that,In preparation for that,the “ CAP Health Check“ the “ CAP Health Check“

was donewas done3 main issues:• how to make the system of direct

payments more effective and simpler

• how to make market support arrangements, originally designed for an EC of six, relevant to now

• how to confront the new challenges of climate change, bio-energy and water management

CAP ‘Health Check’CAP ‘Health Check’3 main issues:• how to make the system of direct

payments more effective and simpler

• how to make market support arrangements, originally designed for an EC of six, relevant to now

• how to confront the new challenges of climate change, bio-energy and water management

CAP ‘Health Check’ CAP ‘Health Check’ AgreementAgreement

• phasing out milk quotas by 2015• decoupling of support• assistance to sectors with special

problems (so-called ‘Article 68’ measures)

• extending Single Area Payment Scheme

• additional funding for EU-12 farmer

CAP ‘Health Check’ CAP ‘Health Check’ AgreementAgreement

• using currently unspent money• shifting money from direct aid to

rural development• investment aid for young farmers• abolition of set-aside• full implementation of cross

compliance• intervention mechanisms