April The Common Agricultural Policy State of play Franz Fischler

April Yesterday... Before November, talk of reform limited to sugar – arable crops exhibited increased competitiveness –impressive growth in domestic cereal demand – stock levels historically low, expected to stay so Livestock sector more vulnerable, but... – beef intervention stocks reached zero level – dairy sector faced long-term challenges, but short-term is fine Yet it was not all about production agriculture – new rural development programmes approved – transmission of “quality” orientation to farmers raised questions

April …and today! What caused the current farm policy debate? – consumer considerations driven by food safety crisis – assumptions of a specific disconnect between supply and demand How does the current CAP fit into the picture? – evidence from the CAP reform process and its results – putting things into perspective (budget, WTO, Enlargement) Is there a need to change the CAP? – does the current policy fit its multiple objectives? – implications for mid-term review

April The old realities Why is agriculture different? Continuous demandContinuous demand –food availability indispensable on a daily basis –total food demand is income and price inelastic Discontinuous supplyDiscontinuous supply –land and farm labour are fixed in time and space –weather-induced major uncertainties –biological cycles in production (e.g., beef, olive oil) –unexpected shocks (diseases, natural disasters etc)  Result: price (and farm income) volatility

April The new realities Why is agriculture different? The demand sideThe demand side –food safety and precaution (risks/benefits under zero tolerance) –environmental impact important (negative image prevails) –method of production also counts (e.g., animal welfare) The supply sideThe supply side –increased production costs from demand-driven pressures –uncertain long-term horizon (is reform an endless process?) –increased food chain bottlenecks  Result: more price (and farm income) volatility

April Are our policy objectives valid? Competitive agricultural sector which can gradually face up to world markets without being over-subsidised Competitive agricultural sector which can gradually face up to world markets without being over-subsidised Production methods which are sound and environmentally friendly, able to supply quality products that public wants Production methods which are sound and environmentally friendly, able to supply quality products that public wants Fair standard of living, income stability for agricultural community Fair standard of living, income stability for agricultural community Diversity in forms of agriculture, maintaining visual amenities and supporting rural communities Diversity in forms of agriculture, maintaining visual amenities and supporting rural communities Simplicity in agricultural policy, sharing of responsibilities Simplicity in agricultural policy, sharing of responsibilities Justification of support through provision of services that public expects farmers to provide Justification of support through provision of services that public expects farmers to provide  But requests by society, reflected in Council decisions, generate conflicting trends

April What implications from our objectives? Implications of a competitive agricultural sector efficiency of production  production cost and farm size relevant efficiency of production  production cost and farm size relevant competitiveness in world markets  lower product price relevant competitiveness in world markets  lower product price relevant  Supply driven agriculture (quantity matters) Implications of a quality agricultural sector higher cost of production  higher product price higher cost of production  higher product price real demand for quality essential  consumer has to pay real demand for quality essential  consumer has to pay  Demand driven agriculture (quality matters)

April How do we reach a balance? Sustainability is required to balance these trends But the following criteria have to be met simultaneously: But the following criteria have to be met simultaneously: – economic sustainability – environmental sustainability – social sustainability  We need a Common Agricultural Policy to meet these criteria

April What without a CAP? downward pressure on farm prices, farm income, farm structures downward pressure on farm prices, farm income, farm structures risk for dual production system: partly extensive, mainly intensive risk for dual production system: partly extensive, mainly intensive abandonment of agriculture, desertification in less favoured areas abandonment of agriculture, desertification in less favoured areas less diversity in forms of agriculture and rural communities less diversity in forms of agriculture and rural communities  Results not in conformity with most CAP objectives nor with society’s aspirations

April What direction for the CAP? CAP is the framework to balance agreed objectives But the relevant policy question then becomes NOT IF, but HOW to support EU agriculture, with focus on: But the relevant policy question then becomes NOT IF, but HOW to support EU agriculture, with focus on: domestic implications domestic implications – efficiency in achieving objectives – distribution impacts of support – budgetary implications international implications international implications – compatibility with WTO rules – impact of policy measures on trade – impact of trade on policy measures

April Does the CAP meet its objectives (1)? Competitive market orientation: In arable crops and most meats (including beef) two reforms within a decade have resulted in: In arable crops and most meats (including beef) two reforms within a decade have resulted in: – lowering the gap between domestic and world prices – increasing domestic demand, lowering intervention stocks – stabilising budgetary expenditure via fixed payments – increasing transparency of policy measures Some sectors are still lagging behind Some sectors are still lagging behind – sugar and dairy quota systems raise wider, complex questions – mediterranean products slower to start, but on their way  Market-oriented process of reform produced successes

April Graph 1. EU wheat policy evolution

April Graph 2. CAP reform and cereal use

April Graph 3. CAP reform and public stocks

April Graph 4. CAP reform and meat exports

April Graph 5. Agenda 2000 and beef support

April Graph 6. EAGGF-Guarantee budget

April Graph 7. EU and US direct payments

April Does the CAP meet its objectives (2)? Production methods that promote quality: Rural development measures: Rural development measures: – Agenda 2000 introduced new, better targeted measures – new orientation: decentralisation, flexibility, simplification – better financial framework in place, but only 10% of budget  Is that enough? Agri-environmental measures: Agri-environmental measures: – measures consolidated in rural development programmes – incentives to exceed “good farming practices”, cross-compliance  Is that enough?