1. April 17, 20021 1. The Midterm Review of the CAP Issues and options Franz Fischler

2. April 17, 20022 2. What do we want from the CAP? Where supporters and most critics of the CAP agree The general policy objectives of the CAP are valid:The general policy objectives of the CAP are valid: –agriculture should be competitive –production methods should be environmentally friendly, able to supply quality products – diversity should characterise agriculture in order to maintain visual amenities and support rural communities – simplicity and subsidiarity should characterise agricultural policy –justification of support should come through the provision of services that public expects farmers to provide  But the question is: how to best achieve these objectives?

3. April 17, 20023 3. An outdated criticism CAP is bad from the developing world perspective Yet... Yet... – EU imports most of agricultural exports from the developing world – Core of EU agricultural exports are high value-added products – EU net-export market share declined in every major sector – EU market access is up in every sector – EU export subsidies are reduced, and will continue to do so – EU food aid is strictly linked to import demand needs

4. April 17, 20024 4. Trade with developing countries

5. April 17, 20025 5. EU net-export market share

6. April 17, 20026 6. A contestable criticism CAP is bad from a WTO perspective Look at the facts and consistency in policy direction Look at the facts and consistency in policy direction – EU focus on improving policy tools under fixed budget constraint – US focus on maximizing budget outlays with fixed policy tools All policies will have to meet same WTO constraints All policies will have to meet same WTO constraints – EU AMS to decline further under Agenda 2000 – US AMS close to ceiling,, risks exceeding it under new farm bill

7. April 17, 20027 7. A misplaced criticism CAP is bad from a consumer perspective Yet… Yet… – consumers pay at the retail level, but price transmission is low – cannot expect simultaneously high quality and low price for EU food products Someone has to pay for additional cost of quality Someone has to pay for additional cost of quality – income-neutral market reform improved market balance – EU farm prices have significantly declined in reformed sectors

8. April 17, 20028 8. EU farm price evolution

9. April 17, 20029 9. Resolving the following dilemma... 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 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

10. April 17, 200210 10....could lead to different approaches 1. The “Scrap the CAP” approach  The relevant policy question is WHEN to STOP support of agriculture at the EU level main elements main elements – process of gradual budgetary decline seen as main objective – adapting CAP instruments means of meeting budget objective – gradual re-nationalisation of agricultural policy a variant 2. The “policy Nirvana” approach  The relevant policy question DOES NOT EXIST CAP is fine as it is CAP is fine as it is – (at least until 2006, then we’ll see…)

11. April 17, 200211 11. Our preferred approach CAP as the framework to balance agreed objectives  The relevant policy question is NOT IF, but HOW to continue support for EU agriculture focus on how our policy instruments enhance focus on how our policy instruments enhance – market orientation – environmental benefits – food safety – quality – rural development

12. April 17, 200212 12. Market sectors and the MTR (a) Arable crops issues Arable crops issues – oilseeds: nothing specific needed to answer the “protein” question – cereals: further 5% drop in intervention price – what impact for border protection? – how to solve the rye oversupply problem? – what to do with level of durum wheat aid and quality problems? Beef sector issues Beef sector issues – market support system (public intervention) already phased-out – direct aids scheme too complex - should we simplify/decouple?

13. April 17, 200213 13. Market sectors and the MTR (b) Dairy policy issues Dairy policy issues – only possibility to present options for the post-2008 dairy regime – are short-term support price adjustments possible? Other market issues Other market issues – what to do with rice (market imbalance, EBA)? – what to do with the dried fodder regime? – proposals expected for sugar, olive oil, tobacco in 2003 – proposals possible for wine, fruit and vegetables in 2003

14. April 17, 200214 14. Rural development and the MTR Transfer of funds from first to second pillar (1A to 1B) Transfer of funds from first to second pillar (1A to 1B) – how to transfer (modulation vs degressivity, shift of measures, payment ceiling)? – how much to transfer from 1A to 1B? – what can be absorbed under present Rural Development rules? What to do with additional funds? What to do with additional funds? – are present rural development instruments sufficient? – is there scope for additional measures to promote quality? – how to deal with co-financing?

15. April 17, 200215 15. Wider questions and the MTR Cross-compliance Cross-compliance – objective is to link support to specific minimum obligations – which obligations advance environment, quality, food safety? Promoting quality Promoting quality – what measures best suited to meet this objective? The decoupling issue The decoupling issue – what objective is decoupling meant to achieve? – are there more than one ways to decouple? – how is decoupling linked to obligations of cross-compliance?

16. April 17, 200216 16. What to conclude? MTR is not a “pro forma” paper exercise Its impact extends beyond the simple production of food Its impact extends beyond the simple production of food – CAP objectives can neither be achieved without policy, nor with 15 (or more) competing policies – CAP instruments need to be adjusted based on factual analysis of what is needed to best meet these objectives  The midterm review next “rendezvous”