EU farm policy until the Uruguay Round

Niek Koning

Agricultural Economics and Rural Policy

History of farm policies

1830s-1870s: liberalisation• privatisation of government bodies, enclosures etc.• trade liberalisation:

– British Corn Law repeal (1846), British-French treaty (1860), tariff reductions in other countries

From the 1880s: intervention• special ministries, support for R&D, land reform etc.• protection:

– Most West European countries in the 1880s-90s– All other older OECD countries in the 1930s– South Korea and Taiwan in the 1960s-70s

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1775 1800 1825 1850 1875 1900 1925 1950 1975

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wheat prices US wheat prices UK farm wages US farm wages UK

Real wheat prices (5-year moving average) and farm wages, US & UK (1818 = 100)

Agricultural productivity in eight European countries, 1870-1910 (in wheat units and prices of 1870)

Farm policy situation in the 6 founding EU countries

• All these countries were already protecting their farmers– Germany, France, Italy, Belgium & Luxembourg from the late

19th century– The Netherlands from the 1930s

• Levels of protection differed between countries– large differences between regions (e.g., Netherlands vs South

Germany)

Formation of the EU (1958): general backgrounds

• Communist challenge and lessons from the Great Depression social market economy– social security needed to maintain social peace– worker incomes should rise to avoid a new depression– active government intervention should strengthen the

position of labour, keep the economy in balance and achieve new welfare aims

Franklin Roosevelt

• Lessons from World War I & II: industrial co-operation between Germany and France as as guarantee against war

– agriculture needed to balance the benefits of co-operation between the two countries

Monnet & Schuman

1958 decisions on EU farm policy

Policy aims:• Rome treaty: reasonable prices for

consumers, reasonable incomes for producers, productivity growth

• Stresa conference: parity aim

Policy means:• Stresa conference:

– single market– unified price support policy– structural policy to reduce regional inequalities– common funding

Sicco Mansholt

EU price policy in the 1960s-70s

• Principle: supporting a few major products, which will indirectly support other crops

• 4 ‘heavy’ common market organisations– grains, milk, beef: variable levies, intervention storage, variable export subsidies– sugar: price quotas (A, B and C-sugar)– NB: few production controls, and variable levies / subsidies were a very

distortionary instrument!

• Supplementary ‘light’ common market organisations– pigs, fruits & vegetables, etc.

• free entry for oilseeds & protein crops (‘Rotterdam loophole’)– concession to the US (Dillon Round)– EU producers supported with direct price subsidies

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Butter and grain mountains

• Increasing costs of surplus disposal– from the outset: dairy– from c. 1980: grain & beef– price subsidies for oilseeds & protein crops

• These competed with new claims for structural & regional policies– effect of accession of Spain & Portugal

• Budget ceiling: levy revenue + maximally 1% of VAT-base

• 1980s: financial crises– farmers: introduce production controls– agro-industrial managers: lower support levels– grain interests: ‘close Rotterdam loophole’

• cause of 1/3 of budget costs of price policy• however, fixed by international agreement

EU farm policy reforms of the 1980s

• Diverging insights on how to solve financial crises– farmers: introduce production controls– agro-industrial managers: lower support levels– grain interests: ‘close Rotterdam loophole’

• cause of 1/3 of budget costs of price policy• however, fixed by international agreement

• General political background: social market policies discredited– economic problems of the 1970s– ‘back to the market’– Thatcherism

• Ongoing tussle about how to limit the costs of surplus disposal– 1984: milk quota system– grain: lowering of support prices

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A word on decision making

Decision making bodies:– Commission: right of initiative– Council: right of veto? (Luxembourg compromise)– Parliament: little power, but right to approve the budget– Court

• Package deals

• Leaders of governments versus agricultural ministers– Financial crisis as crowbar