Overview on the EU Common Agricultural Policy - Page 1May 2008 Seminar „Marketing of Fresh Fruits and Vegetables“ SS 2008 Overview on the EU Common Agricultural Policy Presented by Milana Ruffin

Overview on the EU Common Agricultural Policy - Page 2May Introduction 2. The 2003 CAP Reform: Mechanisms in the grand cultures and FFV sector 3.Comparing sectoral market distortions 4. Conclusion CONTENTS

Overview on the EU Common Agricultural Policy - Page 3May 2008 Introduction – The 2003 Reform MacSharry Reforms and Agenda CAP reform: Decoupling payments for arable crops, dairy, beef, sheep and goats Source: S. RICKARD, 2004, p.750 OBJECTIVES Enhance competitiveness while also protecting farmers from high price fluctuations Promote market-oriented agriculture through the Single Farm Payment (SFP) subject to cross-compliance Stronger support for rural development through modulation of funds from Pillar I to II An irreconcilable trinity?

Overview on the EU Common Agricultural Policy - Page 4May THE 2003 CAP REFORM: MECHANISMS IN THE GRAND CULTURES SECTOR Farm-based:based on average historical payments received in the period per farmer Regionalised: payments related to a flat-rate per ha basis SFP Overview Source: A. SWINBANK, 2005, p.3 Upward arrows: default positions Downward arrows: optional policies

Overview on the EU Common Agricultural Policy - Page 5May 2008 Mechanisms in the grand cultures sector National Reserve: obligatory fund through a linear percentage reduction (up to 3%) Modulation: obligatory 5% since 2007; with a franchise of 5,000 Euro National Envelope: optional path refers to redirecting 10% of direct payments for environmental projects or for improving the quality and marketing of agricultural products New member countries: apply for the Single Area Payment System based on a national flat rate

Overview on the EU Common Agricultural Policy - Page 6May 2008 Specific Commodity Support: Cereals: Unchanged intervention prices at Euro p.t., monthly increments payments for storage halved from 1 to 0.5 Euro p.t. Exception is rye: intervention abolished Mechanisms in the grand cultures sector Maximum rates of coupled support, selected products, Source: GAIN report E34044, 2004, p.8

Overview on the EU Common Agricultural Policy - Page 7May 2008 Mechanisms in the FFV sector Producer Organisations (POs): EU subsidies paid not to individual farmers but to the POs Financed by an operational fund paid for by the EU, limited to 50% of PO expenditures or 4,1% of the value of marketed production Degree to which individual member states are organised varies greatly, between 5% to 70% The Fischler Reform did not reform the FFV sector FFV productions not eligible to claim SFPs in the historical model, unlike in regional model

Overview on the EU Common Agricultural Policy - Page 8May 2008 Mechanisms in the FFV sector Operational Funds: Operational funds used for operational programmes approved by EU member states Typical operational programs: packing equipment purchases, irrigation and greenhouse facilities investments, subsidies to growers for replanting fruit trees Operational funds as crisis management mechanism for product withdrawals 16 produces are eligible for Community Withdrawal Compensation (CWC) Since 2002, the EU pays the POs a CWC compensation p.t. of product withdrawn within the ceilings of 5% for citrus, 8,5% for apples and pears, or 10% for other products of the marketed quantity

Overview on the EU Common Agricultural Policy - Page 9May Sectoral market distortions – domestic support Grand Cultures Sector Measurement: OECD’s Producer Support Estimate A) Support to farmers by maintaining domestic prices for farm goods at levels higher than border prices (market price support) B) Providing payments to farmers (budgetary payments) Market price support responsible for the largest share of the EU‘s Aggregated Measure of Support (AMS)

Overview on the EU Common Agricultural Policy - Page 10May 2008 Sectoral market distortions – domestic support LEVEL % CHANGE 2002 base year Max. decoupling Euro m Min. decoupling Euro m Max. decoupling Min. decoupling Wheat Coarse grains Beef Changes in market price support by commodity Source: OECD secretariat calculations, OECD PSE database, 2004

Overview on the EU Common Agricultural Policy - Page 11May 2008 Sectoral market distortions – domestic support CMO for fresh products (in Euro millions) Source: European Commission FFV Sector Budget for POs currently is at over 700m Euros 1) OPs: production, marketing, environment; min 3, max 5 years 2) Ad hoc withdrawals for perishable FF&V Withdrawals effect on farmers’ incomes mixed & intransparent Operational funds: 1)Operational programs (OP) 2)Withdrawals

Overview on the EU Common Agricultural Policy - Page 12May 2008 FFV Sector Difficulties in measuring amount paid per product, measured as aggregate FFV Export refunds for certain FFVs] are given out via export licences issued under different systems with or without advance refund fixing] The FFV sector used 90% of its WTO allowances in volume in 2002/2003 (OECD, 2007) a strong euro may push export subsidies closer to WTO ceilings The latest reform of the FFV sector proposed the abolishment of all export subsidies Sectoral market distortions – export subsidies Export subsidies limited in volume and value p.a. to comply with URAA/WTO requirements

Overview on the EU Common Agricultural Policy - Page 13May 2008 Sectoral market distortions – export subsidies Grand Cultures Sector in the marketing year 2002/2003, the EU remained well below the WTO ceiling for grand cultures Decoupling effects? Subsidies are likely to decrease only slightly In 2002 the EU paid m Euro to export 3.9 m tons of coarse grains alone (GAINS REPORT, 2003) Export subsidies played a lesser role in recent years given the tendency of EU grand cultures prices convergence with world prices

Overview on the EU Common Agricultural Policy - Page 14May 2008 Sectoral market distortions – market access FFV Sector: Ad valorem tariffs up to 20% Tariff peaks, reaching 128% for fresh fruits and 132 % for fresh vegetables in 1999 Minimum Entry Price System (EPS) for ‘sensitive’ FFV heterogenous picture of the system’s relevance: product- and country-specific Market access: Ad valorem tariffs or specific tariff per unit of number, volume or weight Tariffs depend on the date of entry, processing degree (escalation) and preferential agreements

Overview on the EU Common Agricultural Policy - Page 15May 2008 Sectoral market distortions – market access Grand Cultures Sector: Most prevalent: import tariffs and tariff rate quotas S. FRANDSEN, B. GERSFELT and H. JENSEN (2003): import tariff equivalent between 1997 and 2013 remains constant at 61,5%(of value of domestic production) for wheat, unchanged for other grains at 38,6% while oilseeds show no import tariff equivalents at all in both years A reduction of tariffs only has a small positive effect on the trade balance for cereals (+35 m US-Dollar) but a stronger negative effect on F&V (-116 m US-Dollar) for the EU (M. BROCKMEIER et al., 2007)

Overview on the EU Common Agricultural Policy - Page 16May Conclusion Mechanisms: Payments via Operational funds prominent feature for FFV New CMO for FFV sector with the aim of decoupling payments in line with Fischler Reform Even in the ‘reformed’ sector, member states retain much flexibility for coupled support Decoupling of payments most important aspect of Fischler Reform for grand cultures OUTLOOK: Development of an “applied general political-economic equilibrium model which integrates a modified non-cooperative Legislative Bargaining Model by Baron-Ferejohn as a legislative decision-making model into the general equilibrium” (C. Henning, M. Brockmeier, 2007)

Overview on the EU Common Agricultural Policy - Page 17May Conclusion Market distortions: In both sectors there are significant market access and export competition distortions belonging to the WTO’s ‘amber box’ Principal change was in domestic support pillar for the grand cultures sector, having witnessed the decoupling or likely ‘green-boxing’ of payments In the FFV sector, withdrawals and other payments via operational programs, if taken together, remained largely unchanged sources of domestic support.

Overview on the EU Common Agricultural Policy - Page 18 Thank you for your attention!