International Trade, Consumer Interests and Reform of the Common Agricultural Policy

Susan Senior Nello, Pierpaolo Pierani

• Publisher: Taylor & Francis
• Year: 2010
• Print ISBN: 9781138807051
• eBook ISBN: 9781136961205
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The European Union has launched an important debate on the future of the EU budget from 2013. This discussion is to cover all aspects of EU revenue and expenditure, including that on the Common Agricultural Policy (CAP). The CAP has been radically transformed in recent years, but the issue of its reform, including its goals, its effectiveness in reaching them and the question of division of responsibility and financing between the EU and member states, is once again at the centre of attention.

This collection features well-known experts in the field and aims to contribute to the debate on the present state and future prospects of the CAP and other EU policies. The topics covered range from the EU budget to food safety, rural development, sustainable food consumption, and the influence of international trade negotiations. Many of the ideas presented here are original and controversial and intended to fuel the debate on this important topic. For instance, there are various proposals for the EU budget, the division of responsibilities between the EU and its member states, and the shape of the CAP post-2013.

1
Introduction and overview

Susan Senior Nello and Pierpaolo Pierani

In 2008 the European Union (EU) launched a fundamental debate on the future of the EU budget when the present financial perspective covering the years 2007–13 comes to an end. This review is to cover all aspects of EU revenue and expenditure, including that on the Common Agricultural Policy (CAP), which still accounts for nearly half of spending from the EU budget. The issue of CAP reform, including the question of division of responsibility and financing between the EU and member states, is therefore again the centre of attention.

This review of the CAP is part of an ongoing process of change with major reforms occurring in 1992 (the MacSharry reform), 1999 (the Berlin Agreement on Agenda 2000), 2003 (the Mid-Term Agreement or Fischler reform) and 2008 (the Health Check). Various common trends can be identified in all these reforms:

• A gradual move towards agricultural support that is decoupled, or independent of the level of production. Decoupled support is considered to have the advantage of causing less distortion of international trade. The 2003 Fischler Reform involved the introduction of a Single Farm Payment (SFP), which subject to certain conditions the farmer would receive regardless of whether land was used to produce anything or were left idle, and the 2008 Health Check extended the use of this instrument. To receive the SFP in full farmers have to respect cross-compliance, a form of conditionality aimed at ensuring that farmers meet certain environmental requirements.

• The CAP reforms led to increased flexibility for the member states by allowing choice in how measures were to be implemented.

• Each of the CAP reforms strengthened rural development policy (intended in a broad sense to cover measures to increase competitiveness, to protect the environment, to safeguard the countryside and to improve living conditions), and this became the second pillar of the CAP from 1999.

• There were attempts to correct the bias of the CAP in favour of large farmers (unsuccessful in 1992 and limited in 1999), in particular, through the use of modulation, which involves reductions in the payments to farms and reallocation of the funds released in this way to rural development measures.

Compared with the traditional CAP model based almost exclusively on price support these reforms undoubtedly represent an improvement. However, the CAP can still be criticised on numerous counts: the cost to the EU budget; the high prices to EU consumers; the failure to improve the distribution of income both within the agricultural sector and compared with other sectors; negative environmental effects; the need to ensure food quality and safety; and the continuation of high levels of protection creating tensions with third countries.

More specifically, most support is not sufficiently targeted to specific objectives. Direct payments were initially introduced as supposedly temporary compensation for cuts in price support. They now account for about 70 per cent of the CAP budget and despite the attempt to legitimise their use through cross-compliance or environmental conditionality, their future needs to be clarified. Cross-compliance and rural development policies need to be rendered more effective, while the use of modulation is too limited to permit substantial correction in the distortions in income distribution caused by the CAP. Despite the strong preference of the EU public for food safety and quality, farm interests tend to predominate in deciding CAP measures. Tariffs on agricultural imports from third countries remain high, and though the EU expressed a willingness to eliminate export subsidies in the context of the WTO (World Trade Organisation) negotiations, the uncertain future of the Doha Round means that their abolition remains an open question.

The aim of this book is to address certain of these issues in more detail and to contribute to the debate on the future of the CAP. Its starting point was a conference organised by the Economics Faculty of Siena University to remember Secondo ‘Dino’ Tarditi, Professor of Agricultural Economics and Grand Official of the Order of Merit of the Italian Republic. Tarditi worked on such questions for most of his life and was well known at the Italian, European and international levels, acting as a consultant for governments and international organisations such as the EU and the WTO. Some of the most famous scholars working on international economics, agricultural economics and European integration took part in the conference and this book is based on some of these contributions.

In this introduction we first provide a brief description of the significance of the role of Tarditi, relying heavily on direct quotes to give a flavour of his style of intervention. This discussion serves as a starting point to raise some of the political economy considerations related to the debate on the future of the CAP in the second section. These have been included at this point as they are likely to prove important in shaping the CAP post-2013, and certain aspects of this approach have not been dealt with in any detail elsewhere in this book. The final section of this introduction concludes with an overview of the contents of the various chapters.

The contribution of Secondo Tarditi

Secondo Tarditi was a key figure in what has been described as an ‘informal consortium’ of leading agricultural economists who made a number of very important contributions to the debate on the focus and efficiency of the CAP in recent years.¹ Many of the authors in this book are also members of this consortium.²

A common concern of all these economists was a determination to apply more rigorous economic tools, such as those of cost-benefit analysis and open market economics, to the study of the European farm sector. In the case of Tarditi, for example, this implied assessing the effects of the CAP on the basis of fundamental economic criteria, which he generally defined as: increasing social welfare (efficiency); improving income distribution (equity), and taking into account sustainability and environmental consequences.

An example of the application of these criteria in evaluating the CAP was provided in March 2004 when Tarditi gave evidence to the UK House of Commons (Tarditi 2004), and in a 2001 article where he argues that not only does the CAP cost taxpayers just under 50 per cent of the EU budget, but in addition to this:

… about the same amount is transferred from consumers to the agricultural sector as a result of border protection and increased domestic prices. Altogether these transfers are larger than the net value added of the agricultural sector and larger than the whole value of the EU budget…. Unfortunately only a part of these transfers flow to farm incomes: a considerable part is wasted in disposing of food surpluses, in short and long term market distortions and in misuse of resources. Production quotas and land set-aside, for example are totally at odds with a market-oriented economy and competition, the foundation stones of the EU.

(Tarditi 2001: 23)

This criticism of the CAP is coupled with scepticism about the ongoing reform process as expressed in an article of 2002:

CAP reforms usually promised large steps forward in the direction of serving the common interests of EU citizens, but in the implementation process, sector oriented bureaucrats and policymakers systematically frustrated the more biting reform proposals, maintaining the status quo or even generating a larger waste of public resources and a further reduction in social well-being.

(Tarditi 2002: 241)

In the same article the main strategies underlying this reform resistance are identified as being to:

• change the name and modalities, but not the core of market policy,

• present partial and distorted information e.g. indicate the budgetary burden of the CAP, but not the cost to consumers, and

• maintain the present institutional bias of the CAP … with insufficient representation of consumers, taxpayers and environmentalists.

(Tarditi 2002: 243)

A way of combating such strategies was indicated in an article written with Ulrich Koester in 2002 in response to a letter written by seven EU agricultural ministers in the Financial Times of 23 September 2002. In their article ‘The CAP: something we can be proud of ’, the ministers had maintained that ‘the frequent accusations against the CAP, including those of numerous agricultural economists, are false’. Koester and Tarditi respond in no uncertain terms:

Should we remain in an ivory tower without meddling with the practical implementation of what we teach? … Agricultural Economists should be alarmed. If we assume that we should play a role as public economists, who have a duty to inform the public and contribute to decisions which serve society at large, it looks as if we have not performed well. Such a letter should give rise to an outcry or at least to a wide and timely debate among those agricultural economists, who consider themselves at least in part public economists. Are we too lethargic or don’t we mind, or do we even support the writers of the letter?

(Koester and Tarditi 2002: 46)

As the next section attempts to illustrate, many of these concerns remain unfortunately too relevant to the debate about the shape and future of the CAP from 2013.

Political economy considerations and the future of the CAP

Swinnen (2008) describes the successful introduction of the 2003 Fischler Reform as the outcome of a ‘perfect storm’ or the happy coincidence of a series of circumstances. To what extent is this experience likely to be repeated in the decisions relating to the CAP after 2013?

The political economy literature sometimes makes use of the notion of a political market similar to the economic market, with a demand and supply for government intervention.³ The demand for policy may come from particular groups of voters, firms or interest groups, while politicians and bureaucrats provide the supply. The policy outcome will be the result of the way in which demand and supply interact in the political market and will be shaped by the institutions and economic stakes involved.

With regard to the demand for CAP decision-making, traditionally the farm lobby carried far more weight than consumers or taxpayers. Swinnen in this volume shows how in recent years, in particular, after a series of food scares (BSE, the dioxin crisis, swine flu and so on) consumer preferences with regard to food safety and quality have become strong enough to overcome this inertia, and have caused a crisis of legitimacy with the traditional CAP model. At the same time environmental concerns have come to the fore, with environmental groups becoming actively involved in the debate about the consequences of the CAP.

In the case of the 2003 CAP reform, as Swinnen in this volume argues, Commissioner Fischler reached out in order to involve consumer and environmental groups more actively at the political table. At the same time, also as a consequence of enlargement, the farm lobby in the EU appears to have become more fragmented, and disparities have grown between the expressed interests of agricultural ministers and their national farm lobbies (Syrrakos 2008).⁴ These countervailing powers balancing the traditional farm lobbies seem here to stay and are likely to play a role in the debate about the future of the CAP from 2013.

Turning to the supply side, traditionally at the EU level CAP decision-making took place in an ‘isolated political circuit’, which involved DG VI (now called DG Agriculture and Rural Development, or DG AGRI) of the European Commission, the European Parliament (EP), and the Agricultural (now also Fisheries) Council.⁵ Over time this circuit has gradually been widened, notably to include also the European Council (composed of Heads of State and of Government), and the institutional framework has changed also because of the Lisbon Treaty.⁶

At the risk of oversimplification the role of the European Commission is said to be that of ‘proposing and disposing’: it has the right of initiative of legislative proposals and has powers to implement measures decided. The Commission has never operated in a vacuum and traditionally DG VI worked closely with national farm lobbies and the Community umbrella organisation COPACOGECA.⁷ However, political ec...

Table of contents

• Routledge studies in the European economy
• Contents
• Figures
• Tables
• Contributors*
• Acknowledgements
• Abbreviations
• Foreword
• 1 Introduction and overview
• 2 A CAP for the whole community
• 3 Consumers and the political economy of European agricultural and food policies*
• 4 Sustainable food consumption and government responsibility*
• 5 Pillar II
• 6 Mountain regions as natural laboratories for the evaluation of agricultural policies
• 7 The UK rebate, the budget and the post-2013 CAP faced with fiscal federalism
• 8 Multilateral trade negotiations and the CAP1
• 9 Conclusions
• Index