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The Common Agricultural Policy and its future prospects Iceland, 16 April 2009 John Bensted-Smith Economic Analyses and Evaluation Directorate DG for Agriculture and Rural Development European Commission

J. Bensted-SmithIceland - 16 April The development of the CAP

J. Bensted-SmithIceland - 16 April How has CAP evolved?  1992 reform: –Move from price support to direct payments  Agenda 2000: –Further cuts to support prices –Increase in direct payments –Rural development becomes a policy of its own (Second Pillar)  2003 reform: –Decoupling of direct payments –Direct payments linked to cross compliance –Introduction of modulation

J. Bensted-SmithIceland - 16 April Evolution of CAP expenditure and CAP reform path EU-10EU-12EU-15EU-25EU-27

J. Bensted-SmithIceland - 16 April CAP budget cost trend EU-12EU-15EU-27

J. Bensted-SmithIceland - 16 April What is the CAP today?  The CAP is a regulatory policy embedded in a sustainable development strategy aimed at –competitive EU agricultural sector –quality products –enhancing environment and landscapes –dynamic sustainable rural economy –shrinking impact on world stage in a socially acceptable way and responding to the expectations of the European society

J. Bensted-SmithIceland - 16 April Common Agricultural Policy (CAP) Food Environmental function Rural function Multifunctional agriculture First Pillar: -Common Market Organisation -Direct payments (“decoupled” from production) -Cross compliance standards Second Pillar: Rural Development Policy Modulation

J. Bensted-SmithIceland - 16 April The “Health Check” of the CAP (2008)  What was the scope of the Health Check? –Group together a series of review clauses of the 2003 CAP reform –Propose adjustments that do not constitute a fundamental reform –Fine-tune the 2003 reform during the period –Contribute to the discussion on future priorities in the field of agriculture  HC aimed at addressing three main policy questions –How to make the direct payment scheme more effective, efficient and simple? –How to adapt market instruments to meet new market opportunities? –How to respond to new and ongoing challenges?

J. Bensted-SmithIceland - 16 April Direct support (1/3)  Flatter rate in Single Payment Scheme (SPS) –MS allowed to move to flatter rates of support –For new MS, possibility to apply Single Area Payment Scheme (SAPS) until end of 2013  Simplification of the SPS including abolition of set-aside –Set-aside entitlements abolished, become normal entitlements –Rules of direct payments simplified –Lower payment limitations introduced

J. Bensted-SmithIceland - 16 April Direct support (2/3)  Cross compliance –Simplification by deleting redundant provisions and articles not relevant to farming activities –Addition of provisions in list of Good Agricultural Environmental Conditions (GAEC): buffer strips along water courses and compliance with authorisation procedures (if any) in case of irrigation –Implementation as from 2010 (by 2012 for buffer strips)  Partially coupled support and other aid schemes –Full decoupling from 2010 for arable crop, durum, olive oil and hops –From 2012 for beef and veal, rice, nuts, seeds, protein and aid for starch growers –Abolition of energy crop premium –MS allowed to maintain coupled support for suckler cows, sheep and goats

J. Bensted-SmithIceland - 16 April Direct support (3/3)  Revised Article 69 measures (new Article 68) –Extend financing of revised Article 69 –Target measures to economic/environmental disadvantages in certain regions/sectors –Allow MS to support risk management measures

J. Bensted-SmithIceland - 16 April Market measures (1/2)  Milk quotas –Increase milk quotas by 1% annually from 2009 to 2013 –Additional super levy for 2009 and 2010 (for overshoots higher than 6%) and adapted fat correction –Review clause in 2010 and 2012 to assess market developments and report on PDO cheeses –Abolish private storage for cheese and butter disposal aids  Cereals –Bread wheat intervention remains with no quantitative limits. Tendering system starting from quantities above 3 million tons –Quantitative ceilings set to zero for all coarse grains, durum wheat and rice

J. Bensted-SmithIceland - 16 April Market measures (2/2)  Other intervention measures –Pig meat intervention abolished  Specific support schemes –Decoupling of processing aid by 2012

J. Bensted-SmithIceland - 16 April Rural Development  Address new and ongoing challenges: climate change, bio- energy, water scarcity, biodiversity, dairy accompanying measures and innovation related to the afore-mentioned priorities  More funding via an increase in compulsory and the introduction progressive modulation  Revision of National Strategy Plan and Rural Development Programs indicating how additional funds will be used in meeting the new challenges Thresholds (in €) to % to %3%4%5% Above %7%8%9%

J. Bensted-SmithIceland - 16 April The main points agreed in the Health Check  The Health Check of the CAP has concluded with some important agreements: –The principle of decoupling is confirmed: most direct payments will be decoupled by 2013 –Market management tools are streamlined and updated, to be part of a “safety net” –Increase of the milk quota will allow a “soft landing” for the dairy sector in 2015, when the quota system will come to an end –Modulation has been increased to face up to new challenges such as climate change, with a “progressive” element introduced

J. Bensted-SmithIceland - 16 April The CAP after the Health Check  After the adoption of the Health Check, a new debate on the future of the CAP has just started  The important elements to be considered will be: –The outcome of the EU budget review for Post-2013 –The international dimension of the CAP (WTO, bilateral and regional agreements) –The debate on CAP objectives, structure and instruments and the links with EU main challenges (competitiveness; research/innovation; environment/climate change; energy supply security)

J. Bensted-SmithIceland - 16 April The debate on CAP objectives, structure and instruments  Agriculture is still a strategic sector in Europe –Diversity of the EU agriculture should be a key element –Agricultural activities should be maintained in all regions  The issues on the discussion will probably not differ fundamentally from the HC debate: –Direct payments are the most efficient means of supporting farmer’s income –European farms need to be market-oriented, but safety nets will be required –Rural development objectives will remain relevant beyond 2013: modernisation, public goods, new challenges (climate change)

J. Bensted-SmithIceland - 16 April The EU enlargement process

J. Bensted-SmithIceland - 16 April The conditions for enlargement  Any European country which respects the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, may apply to become a member of the EU (Articles 6 and 49 of the Treaty on European Union, 1992)  The country has to fulfill the “Copenhagen criteria” (European Council, December 1993): –stable institutions that guarantee democracy, the rule of law, human rights and respect for and protection of minorities, –a functioning market economy, as well as the ability to cope with the pressure of competition and the market forces at work inside the Union, –the capacity to assume the obligations of membership, in particular adherence to the objectives of political, economic and monetary union

J. Bensted-SmithIceland - 16 April Accession to the EU  Accession is a long and rigorous process: speed depends on how the country progresses towards common goals  The stages: 1. Country applies for membership 2. Commission prepares opinion and submits it to the Council 3. Council accepts (or not) opinion and unanimously agrees a negotiating mandate 4. Negotiations are formally opened between candidate and all Member States 5. Screening of EU legislation (“acquis communitaire”) 6. Negotiations close 7. Accession Treaty is drafted 8. Accession Treaty is signed 9. Referendum, ratification 10. Accession Treaty enters into force

J. Bensted-SmithIceland - 16 April The screening of EU legislation  “Acquis communitaire”: –EU legislation divided into 35 chapters (Chapter 11. Agriculture and RD) –Not negotiable –Each chapter has to be examinated in detail (officials from EU and candidate country) –The Commission can recomend certain conditions (“opening benchmarks”) to be met before opening negotiations  Negotiations between EU Member States and candidate countries focus on the conditions and timing of the candidate's adoption, implementation and enforcement of all the EU rules already in force (“acquis communitaire”)

J. Bensted-SmithIceland - 16 April Elements of the agricultural acquis 1. Direct support 2. European Agricultural Guarantee Fund (EAGF) 3. Integrated Administration and Control System (IACS) 4. Paying agencies 5. Trade mechanisms 6. Stocks 7. Farm Accountancy Data Network (FADN) 8. State Aid 9. Common Market Organisation (CMO) 10. Rural development 11. Quality policy 12. Organic farming

J. Bensted-SmithIceland - 16 April Which legal and administrative changes have to be made?  Adequate administrative capacity of the agricultural administration, including agricultural policy formulation, analysis, implementation, support payment and control  Adequate administrative capacity for the formulation and implementation of the Community Rural Development programmes  Legislative alignment and setting-up of administrative capacities in the areas of organic farming, quality policy and other horizontal aspects  At agricultural market level, setting up of market mechanisms (including marketing standars, price reporting, quota management, producer’s organisations, public intervention, etc.)

J. Bensted-SmithIceland - 16 April IACS and Paying Agency  The most important areas of the EU acquis and for which a longer time of preparation is required  Main IACS components are: –LPIS (Land Parcel Identification System), based on cadastre or block system –Farmer’s integrated register, based on good development of statistical system –Animal Identification and Registration system

J. Bensted-SmithIceland - 16 April Some impacts of accession processes (recent and 1995)  Sustained trade increase within the EU (both imports and exports within NMS and the EU), due to the abolition of “trade barriers”  Growth of NMS farmer’s income, without deteriorating farmer’s income in old MS, due to the rise of revenues in the cereal, beef and dairy sector, as well as (for EU-10) EU financial direct support  No radical changes in EFTA NMS structures; although no significant changes of the unfavourable agrarian structure (small size farms, lack of capital for investments), many small farms dropped off the market due to high production costs  Consumer food prices declined somewhat in EFTA NMS but rose in most recent NMS (e.g. sugar, meat, dairy products, bananas, oranges); food industry suffers from lack of competitiveness

J. Bensted-SmithIceland - 16 April Thank you for your attention