Agriculture and Rural Development Importance of the market instruments and producers' organisations in the food chain Carlo PAGLIACCI DG AGRI, Unit C.1 15 October 2012

2 1. ORIGINS AND PRINCIPLES 2. DO WE NEED MARKET INSTRUMENTS? 3. THE REFORM PROCESS 4. THE CAP TOWARDS 2020

Agriculture and Rural Development 1. ORIGINS AND PRINCIPLES

4 Origins National policies were already in place before the creation of the CAP, inter alia: to increase food production to improve living conditions of farmers After World War II, two major challenges: food production farmers’ incomes

5 Origins and principles The CAP’s original objectives a) Increase agricultural productivity b) Ensure a fair standard of living for the agricultural community c) Stabilise markets d) Assure the availability of supplies e) Ensure that supplies reach consumers at reasonable prices are maintained in the Lisbon treaty

6 Initial measures 6 Foundations of the CAP Community preference Financial solidarity Initial principles Market unity Price support measures intervention buying Import tariffs Import quotas Export refunds

Agriculture and Rural Development 2. WHY DO WE NEED MARKET MEASURES ?

8 Why do we need market measures ? Agriculture is strongly dependent on natural factors and exposed to unforeseen events such as floods, droughts, animal deseas etc. Increasingly volatile markets can threaten the economic viability of farms and make safety-net measures necessary

9 Many roles and services generated through agriculture are public goods that are imperfectly delivered through markets – policy measures are required to incentivise farmers to deliver these goods demanded by citizens from European agriculture Support is necessary to keep sustainable agriculture in place throughout Europe – without it, production would be concentrated in favourable areas while land may be abandoned in less competitive regions Income in Agriculture is less than average Why do we need market measures?

10 Why do we need a CAP? Support at European level provides for a coherent agricultural policy framework, guaranteeing a level playing field with common rules for all Member States Common action is needed to address challenges that reach across Member State borders, such as climate change or the decline in biodiversity

11 Agricultural income as % of total economy income Share of agricultural income/non salaried AWU as % of wages/FTE in total economy

Agriculture and Rural Development 3. Historical development of the CAP

13 Historical development of the CAP The Early Years Productivity Competitiveness Sustainability Over production Exploding expenditure International friction Structural measures The Crisis Years Reduced surpluses Environment Income stabilisation Budget stabilisation The 1992 Reform Deepening the reform process Competiti- veness Rural development Market orientation Consumer concerns Rural Development Environment Simplification WTO compatibility CAP reform 2003 Reinforcing 2003 Reform New challenges Risk management CAP Health Check 2008 Food security Improving productivity Market- stabilisation Product support Agenda 2000

14 Reform process: the main steps (1/2) Mac Sharry reform in 1992 cut in support prices («intervention prices ») full compensation for loss of income (direct payments) accompanying measures (agro-environment, early retirement, afforestation) Agenda 2000 further price cuts compensation for loss of income setting up the 2 nd pillar (R 1257/99)

15 Fischler Reform in 2003/04 decoupled direct payments cross – compliance modulation more market-oriented agriculture The Health Check by Fischer Boel in 2008 better targeting direct support to farmers better responding to market opportunities strengthen Rural Development to respond to new challenges Reform process: the main steps (2/2)

16 Decision of reform reflects a clear political choice : continue support for EU agriculture (the “not if but how” question) in a manner that meets citizens’, taxpayers’ and consumers’ needs and expectations and that is less trade-distorting The CAP today: a consistent process of reform

17 A substantially reformed policy better performing Surpluses belong to the past Competitiveness improved Improved transfer efficiency More sustainable farming Integrated approach for rural areas Contribution to EU budget stability The CAP today

18 The path of CAP expenditure Source: DG Agriculture and Rural Development. EU-10EU-12EU-15EU-25EU-27

19 Reductions in EU price support bringing EU prices in line with world prices

20 The evolving role of EU support prices - wheat Sources: European Commission - DG Agriculture and Rural Development and World Bank Notes: years are market years July-June; 2011* = July-March average.

21 The evolving role of EU support prices - beef Sources: European Commission - DG Agriculture and Rural Development and World Bank

22 The evolving role of EU support prices - butter Sources: European Commission - DG Agriculture and Rural Development and FAO.

23 Impact of CAP reforms on EU net production surplus Sources: European Commission – Eurostat and DG Agriculture and Rural Development

Agriculture and Rural Development 4. THE CAP TOWARDS 2020 … NEXT STEPS

25 What are the challenges for agriculture… Economic challenges Food security Price variability Economic crisis Environmental challenges GHG emissions Soil depletion Water/air quality Habitats and biodiversity Territorial challenges Vitality of rural areas Diversity of EU agriculture Challenges Environmental Economic Territorial Commission Communication ‘The CAP towards 2020’

26 Climate change – Possible impacts on EU agriculture ▲ Floods risk ▲ Hotter and drier summers ▲ Sea levels ▲ Risk crop pests, diseases ▲ Crop, forage yields ▼ Animal health, welfare ▼ Water availability ▲ Risk drought, heat spells ▲ Risk soil erosion ▼ Growing season, crop yields ▼ Optimal crop areas ▼ Summer rainfall ▲ Winter storms, floods ▲ Length growing season, yields ▲ Suitable farmland ▲ Pests, diseases risks ▲ Winter rainfall, floods ▼ Summer rainfall ▲ Risk drought, water stress ▲ Soil erosion risk ▲ Yields, range of crops Source: DG Agriculture and Rural Development, based on EEA reports, JRC and MS academic studies.

27 Price volatility

28 Long term commodity price trends Korean War Two oil crises Recent Boom Source: World Bank.

29 Importance of primary sector in employment

30 3. CAP proposals in detail

31 Improved instruments to address market developments (sCMO) Increased financing for research and innovation Forum for a Better Functioning Food Supply Chain Enhanced safety-net Exceptional measures – more flexibility and greater coherence Public intervention/private storage simplified, more responsive to crises ‘Crises reserve’ Continued market orientation Encouraging common action – better position in the food supply chain Facilitated recognition of: Producer Organisations (PO), Associations of POs, Interbranch Organisations More clarity as regards competition rules Link to Rural Development funds (start-up and co-operation measures) End of certain aid schemes (Skimmed Milk Powder, hops and silkworms) End of production limits (sugar) Sustainable consumption - School Fruit and Milk Scheme Increased funding New measures available for EU co-funding Link to the consumer Common responses to economic and environmental challenges Competitiveness of individual agricultural producers

32 Thank you