Common Agricultural Policy Reforms and Future

Transcription

1 PREGLEDNI RAD Common Agricultural Policy Reforms and Future Jasna Čačić 1, Jasenka Gajdoš Kljusurić 2, Dražen Čačić 3 1 Croatian Association of Drink Producers, Kučerina 64, Zagreb, Croatia (jasna.cacic@giupp.hr) 2 Faculty of Food Technology and Biotechnology, University of Zagreb, Pierottijeva 6, Zagreb, Croatia 3 Croatian Agricultural Extension Service, Kačićeva 9, Zagreb, Croatia Abstract Common Agricultural Policy (CAP) is one of the most complicated and most expensive policies of the European Union. The main objectives of the paper are: to give an overview of the CAP s reforms, to identify the advantages and disadvantages of reforms and to suggest what possible future strategy for CAP is. The methodological approach comprises three key steps: an analysis of reforms, an identification of advantages and disadvantages through Internal and External Factors Evaluation Matrixes and creation of Internal- External Matrix. The results indicate that, in spite of criticism, CAP has proved itself as efficient policy. Suggested strategy for future of the CAP is hold and maintain strategy. Key words: CAP, agriculture, policy, Europe, reform Introduction Common Agricultural Policy (CAP) could be defined as a sum of rules, practices, legislations and mechanisms adopted by the EU Member States in order to ensure objectives specified in Treaty of Rome (1957) and to protect EU agricultural market. It was introduced because of lack of food production on Europe after World War II as a result of unreliable prices, low investments and wasted land. CAP has economic and social component as it was result of general economic integration in Europe. According to the Treaty of Rome signed in 1957 by France, Germany, Italy, Netherlands, Belgium and Luxembourg, Article 39 the objectives of the common agricultural policy are: a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour; b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture; c) to stabilise markets; d) to assure the availability of supplies; e) to ensure that supplies reach consumers at reasonable prices. CAP is the most expensive scheme in the EU. The CAP s financial costs have been very substantial. In the 1970s and 1980s, the CAP absorbed about two-thirds of the EU entire annual budget on average (Stead, 2008). The European citizens have paid higher taxes than would have been paid in of the absences of agricultural subsidies. Price and market policy have been the main instrument of the CAP (Zobe, 2001). As a result of difficulties that occurred during the years of CAP s implementation like surpluses in agricultural commodities, rising costs, external trading environment, concerns about food safety and awareness of environmental issues, CAP has been reformed several times. The paper should answer the question: is the CAP just a tool to protect inefficient farmers and transfer money among EU member states or has it proved itself as a valuable and efficient EU policy. The paper should also indicate what possible future strategy for CAP is. 48. hrvatski i 8. međunarodni simpozij agronoma Dubrovnik Hrvatska 147

2 Agricultural Economics and Rural Sociology Material and methods The research is based on the quality analysis of CAP s reforms. Besides, Internal Factors Evaluation (IFE), External Factors Evaluation (EFE) and Internal-External (IE) methods/matrixes are used in the paper. The matrixes are strategic management tools used for conducting an internal and external audit of CAP and they provide a basis for identifying and evaluating relationships among internal and external areas. Quality analysis is used as a source for external and internal information needed for development of matrixes. Although IFE and EFE methods could be understand as subjective ones, introduction of numbers into formation of matrixes (assigning weights and ratings to individual factors) give certain empirical component to model. Intuitive judgments and understanding of factors included are required in developing the matrixes. Results and discussions The role of agriculture in the European Union is large. Although agricultural sector had not contributed a lot to the GDP of Europe (between 14% in 1950s and 4% in 2003) its importance within the entire economy is unquestionable. Speaking about historical development of the CAP, productivity was key word at the beginning of the EU agricultural policy as the main concern in Europe in the 1950s was to increase the food supply (Fennell, 1997). The first reform after inception of CAP came in 1968 and is known as Mansholt Plan. Main principles of the reform were: increasing competitiveness of farmers and European food productions as well as introduction of rural development policy for disadvantaged areas. Growth in agricultural productivity and the stimulus of price supports have led to overproduction in Western Europe (Tracy, 1984) so the next fundamental reform proposed by the commission started in 1983 and continued till The changes were needed because of over production, exploding expenditure in agriculture (around 70% of the whole budget), environmental unsustainability and trade disputes. The main goals of the reform were: balance on the market between supply and demand, food security, preserving the nature landscape and the environment. In 1992 MacSharry reform took place and it attempted in reducing agricultural prices on major products (cereals, oilseeds, beef) making agriculture more competitive in the internal and world market. The main objectives of this reform besides the reducing prices were: compensations to the farmers by direct payments for reducing prices based on historical yield and animal numbers and 10% set aside as an obligation. This reform was very important for the CAP s future setting the path for de-coupled model of farm support. Since 1992 reform, competitiveness was key point of the CAP. After that Agenda 2000 brought new way of thinking and sustainability as a primary objective of the reform. It included: promotion of a fair standard of living for farmers, creation of substitute jobs, introduction of new policy for rural development (second pillar) and improvement of food safety and quality. CAP reform in 2003 known as Fischler reform have introduced decoupling and single farm payments, cross compliance with environmental program, modulation, strengthening of rural development policy, simplification of CAP and WTO compatibility. The reform in 2008 known as CAP Health Check brought new measures (phasing out milk quotas, decoupling of support, shifting money from direct aid to rural development, abolition of set-aside) in order to allow a better response to the new challenges and opportunities faced by European agriculture. CAP represents now days nearly 40% of the EU budget and remains a highly controversial policy despite past reforms (Swinnen and Knops, 2012). According to the same authors, today budget for CAP remain largely untargeted and inequalities in payment distribution persist. Taking into account all reforms th Croatian & 8 th International Symposium on Agriculture Dubrovnik Croatia

3 and changes of the CAP it could be concluded that the main beneficiaries are bigger farmers (20% from all farmers) who receive 74% of funding. When speaking about the member states, the most benefits have states with large agricultural sector like France being largest recipient of CAP funds, followed by Spain and Portugal. In order to analyse advantages and disadvantages of Common Agricultural Policy EFE IFE methods have been used. EFE matrix has been made taking into account external factors that could influence Common Agriculture Policy. According to the Riston (2008) external analysis include acting as an early warning system increasing awareness of environmental changes. Table 1. The External Factors Evaluation (EFE) Matrix Description Weight Rating Weighted Score OPPORTUNITIES Self-sufficiency in food production 0,12 4 0,48 High standards of food safety and animal welfare 0,04 2 0,08 Europe s surpluses can food shortages in the developing world 0,09 3 0,27 Keeping people on the land and in agricultural business 0,10 2 0,20 Attract young people into farming 0,08 1 0,08 Maintaining the rich diversity of rural areas 0,05 1 0,05 Eliminating trade barriers within the European countries market without tariffs 0,12 2 0,24 THREATS Spending too much money on subsidies 0,13 4 0,52 Fierce of competition from emerging giants (China, India) 0,08 3 0,24 Not enough investments in agricultural research 0,05 2 0,10 Artificially high food prices for EU consumers 0,03 1 0,03 Aging population of European farmers 0,05 2 0,10 Using non-tariff barriers for import from non- European countries 0,06 3 0,18 1,00 2,57 IFE matrix for Common Agricultural Policy has been made based on strengths and weaknesses that occur as a result of CAP s reforms. Table 2. The Internal Factors Evaluation (IFE) Matrix Description Weight Rating Weighted Score STRENGTHS Keeping agricultural business sustainable 0,05 3 0,15 Guaranteeing food quality and safety 0,13 4 0,52 Encouraging environmental farming 0,02 3 0,06 Reducing reliance on imported food 0,15 4 0,60 High-level of protection for EU agriculture 0,18 4 0,72 Fair and stable income for farmers 0,04 3 0, hrvatski i 8. međunarodni simpozij agronoma Dubrovnik Hrvatska 149

4 Agricultural Economics and Rural Sociology WEAKNESSES Low elasticity of demands 0,03 2 0,06 Differences in yields, input prices and revenues between the regions of EU 0,05 1 0,05 Volatility of production 0,03 2 0,06 Growing expenditure for CAP 0,06 1 0,06 Surpluses in agricultural commodities 0,02 2 0,04 Comprehensive and oversize legislation 0,11 1 0,11 Complex decision making process 0,13 1 0,13 1,00 2,68 The results of the Internal and External Matrix were used for the Internal-External (IE) Matrix in order to suggest the possible future strategy for Common Agricultural Policy. Table 3. The Internal-External (IE) Matrix The IFE total weighted scores The EFE total weighted scored High 3.0 to 4.0 Medium 2.0 to 2.99 Low 1.0 to 1.99 Strong 3.0 to 4.0 Average 2.0 to 2.99 EFE 2.57 IFE 2.68 Weak 1.0 to 1.99 The IE Matrix is strategic management tools and in the paper is used to analyse working conditions and strategic position of CAP. It is continuation of EFE and IFE matrix models. Results from IE Matrix indicated that hold and maintain strategy (David, 2007) should be suggested as future CAP strategy. The model of CAP should be defended and threats should be ward off. Conclusion In spite of several attempts to reform the CAP through the history, problems in EU agricultural sector still exist and have not been solved yet. That is not surprising taking into account oversized legislation and complexity of decision making process between member states. On the other side fair and stable income, keeping people on the land and attracting young farmers to enter into agriculture are some of the most important positive impacts of the CAP proving its efficacy. According to the results of the IE Matrix, Europe should continue with its agricultural policy in order to keep place achieved in the world market as a second largest global exporter and the biggest importer and to protect themselves from competitors from other markets. In sectors like agriculture where the competition is high because of technological changes and more liberalisation, Europe needs to defend competitive position. Changes should be made in order to maintain its competitive advantages. At this point CAP should be oriented on new market segments to increase market share and to develop new products or modify existing products. On the other hand, CAP should expand but not aggressively. It could be concluded that in spite of lot criticism, Common Agricultural Policy has proved itself as an efficient tool in defending European market. Lessons learned from the CAP should be a road mark for Croatian policy and decision makers. Those lessons should be taken into account by planning future of Croatian agriculture th Croatian & 8 th International Symposium on Agriculture Dubrovnik Croatia

5 References David F.R. (2007). Strategic Management, Concept and Cases, Pearson Prentice Hall, Upper Saddle River, New Jersey. Fennell R. (1997). The Common Agricultural Policy - Continuity and Change, Clarendon press 1997, Oxford Riston N. (2008). Strategic Management, Neil Riston and Ventus Publishing APS. -5 Stead D. R. (2008). The Birth of the CAP, EuroChoices, Vol (7)::6-12 Swinnen J.F.M., Knops L. (2012). CAP Reform: Will the European Parliament take the bull by the horns, CEPS Commentary, Agricultural and Rural Policy, pages 5. Available at: Treaty of Rome (1957). Available at: documents/treaties/rometreaty2.pdf Tracy M. (1984). Issues of Agricultural Policy in a Historical Perspective, Journal of Agricultural Economics, Vol (35): Zobe H. (2001). The Economic and Historical Foundation of the Common Agricultural Policy in Europe, Fourth European Historical Economics Society Conference, Oxford, September hrvatski i 8. međunarodni simpozij agronoma Dubrovnik Hrvatska 151