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The Common Agricultural Policy
   Economic & legal framework
       Rules of the Treaty
       The first common market organizations
       CAP reforms
   CAP management and financing
       Management
       Financing of the CAP
       Common market organizations
   The principles of the CAP
       Agricultural prices and product quality
       External wing of the CAP
   Structural policy
       EAGGF-Guidance and socio-structural measures
       Support measures for CAP reforms
The “best example” of integration
   Wide-spread state interventions prior to 1958 
       Strong Community intervention was needed to ensure free trade
   Extremely complicated:
       Common prices, common price management instruments, joint
        financing of support measures and common external protection
       Exchange rate fluctuations  “green currencies” + MCA
   Two wings of Common Agricultural Policy (CAP):
     Common market organizations
     Socio-structural policy
   Decisive characteristic:
    Prices play the pivotal role, the interplay of supply and
    demand has never totally been squeezed out of the market

The need for CAP
   The very nature of agriculture
       The outstanding role of Mother Nature
       The social importance of a smooth supply
   Complementary character of the output of MSs
       Northern States: cereals, meat, dairy products
       Southern States: fruit & vegetables, wines
   Governments are obliged to ensure the meeting of demand
   MSs had a combined deficit in agricultural products
   Different shares of agriculture in employment and in the
    production of GDP in various MSs
   Differing levels of interventions in the various MSs
Rules of the Treaty
   Art. 33 of the Rome Treaty:
       Higher agricultural productivity
       Guarantee of a fair standard of living to farmers
       Market stabilization
       Supply security
       Reasonable prices for consumers
   Art. 34: Common market organizations:
       Common coordination rules
       Compulsory coordination of the various national market organizations
       European market organization (this form became exclusive)
   Rules of competition applied to agriculture (1962)
   Art. 81-82: exceptions – cooperatives and farming
   Art. 85: rules on state interventions applied in the case of           5
The first common market organizations
   1958: Conference of Agricultural Ministers in Stresa
   Proposals for the Council in late 1959
   “Agricultural Marathons” – negotiations on individual
       By 1962: cereals, pigmeat and poultry meat, eggs, fruit and
        vegetables, wines
       By 1963: rice, beef, veal, dairy products
   85% of agricultural output of the six MSs
   CAP required Commission to take over control of the MSs’
    expenditure under the CMOs – delays
   Policy of “empty chair” – solved in the Luxembourg
    compromise on January 28, 1966
   Agreement on financing of CAP could be reached (1966)
CAP reforms – 1
   End-1968: Structures come to the focus of the Council’s
   Memorandum on the reform of agriculture in the EEC:
    Agriculture 1980 (Mansholt plan)
   Marathon sessions April 1972: Directives on the first
    reform of the CAP
       modernization of farms
       measures
           to encourage cessation of farming and
           the reallocation of utilized agricultural area for structural improvement
           provisions for the acquisition of occupational skills for persons engaged
            in agriculture
   mountain and hill farming
   processing and marketing of agricultural produce
CAP reforms – 2
   1988: second CAP reform – Delors I package
       reformed the common agricultural policy
           market related measures (maximum guaranteed quantities)
           co-responsibility levies
           measures for afforestation
           diversification of agriculture
           incentives for the set-aside of farmlands
       set the level of agricultural expenditure
       reformed the support policy of the EEC, including the Structural
   Results: too small
       productivity improved in farming
       output increased in spite of restrictions
CAP reforms – 3
   May 1992 – third reform (McSharry):
       a substantial cut in the target prices of agricultural products 
           to increase their competitiveness both in- and outside the EC
       full compensation of farmers by premiums not linked to the quantities
        produced (“decoupling”)
       measures limiting the use of means of production:
           set-aside of arable land
           withdrawal of part of the land for major crops
           limits on livestock numbers per hectare of fodder area
       measures to conserve environment and landscapes
       encouragement of early retirement of farmers
       switching the use of farmland for other purposes (afforestation and
CAP reforms – evaluation
   They reflect the changes in the supply situation:
       instead of net importer  net exporter
       the Community is seeking to increase production only in
        areas where the extra quantities can find an outlet
       progressive reduction of producers’ prices for certain key
        products (cereals, milk and beef)
   Aids to farms not only through price support
       compensations & premiums
   McSharry reform
       demonstrates the EC’s willingness to liberalize (GATT),
       conserves the principles and basic instruments of CAP        10
CAP management
   The institution entrusted with the management of CAP is the
    Commission (initiator, –often– legislator, executor)
   Special Committee on Agriculture (instead of COREPER)
   Management: either joint responsibility of Commission &
    Council or of Commission alone
   In case of basic regulations: full procedure is applied
       Commission ( professional organizations)  Council  EP + ESC
   Long lasting provisions: medium procedure
       Commission  Council (no consultation)  decision
   Practical decisions: management committee procedure
       Commission  management committee,  decision
   Everyday business (eg. daily setting of levies): Commission

CAP financing: FEOGA
   FEOGA managed by Commission – through “agents” in MSs
     advance payments, annual clearing of accounts
   Guarantee section (market policy):
       Refunds for exports to third countries,
       Operations on the internal market (purchases, aid and premiums for
        production or processing, storage)
       Monetary compensatory measures
       Aids to developing countries
   Guidance section (structural policy):
       Only partial financing
       Complements national aid
       Projects have to be submitted and meet criteria
       Generally 25% of expenditure (up to 50%)

Common market organizations
   Relate to agricultural products
       Products of the soil, livestock products and fishery products +
        products of first-stage processing
       Foodstuff are products of second-stage processing – not covered
   Two basic systems of subsidies:
       Direct income aid (traditionally in UK)
           Few import and importers
           Internal prices are not higher than world market prices
       Price subsidies (in the founding MSs)
           Internal prices (much) higher than world market prices
           The difference compensated by import levies and export refunds
           They stimulate production and productivity
           Tend to guarantee self-sufficiency
       McSharry reform: added the first to the second type

The principles of CAP
   Market unity
       Free movement of goods +
       Common agricultural prices throughout the Community
       Is based on the assumption of the interplay of market forces
   Community preference
       Products of Community origin are bought in preference to imported
       Import made artificially expensive: levies  customs (GATT)
       Potential export tax to keep supply in the EC (in case of shortage)
   Financial solidarity (1962)
       Common expenditures (FEOGA), common incomes (levies)
   Co-responsibility –
       Limits on subsidized quantities
       Stabilizers – maximum guaranteed quantities of intervention
Price “categories” in the CAP
   The role of agricultural prices in the EEC:
       Guide production
       Trigger intervention mechanisms
       Secure common external protection
   The main types of agricultural prices (to be continued!)
       Guide price (beef and veal, wine) target price (cereals, sugar) norm
        price (tobacco)
           The price the CMO seeks to guarantee
           Set for each year  guide production
       Intervention price (cereals, sugar, butter, beef and veal, tobacco) or
        basic price (pigmeat) withdrawal price for fruit and vegetables
        (cannot be stored)
           Somewhat lower than guide price
           Intervention agencies have to buy products offered to them at this price
            – storage (often given away as aid)
External wing of CAP
   Protecting markets from cheap outside import
   Keeping prices high:
       Internally – intervention price
       Externally – threshold price
   Threshold price (cereals, sugar, dairy products, olive oil) or
    sluice-gate price (pigmeat, eggs and poultry): minimum price
    above which imports from third countries enjoy free entry
   Import levy: bridging the gap between world price and
    threshold price  customs duties (GATT) + 20% cut in the
    level of internal subsidies over 6 years
   Export subsidies: 36% reduction in level, 21% in quantities
    over 6 years

Structural policy
   What are agricultural structures?
       All production and work conditions in the sphere of agriculture
       The number and size of farms
       The technical equipment on farms
       The qualification of farmers
       Producers’ groups
       Marketing and procession of agricultural products
   The 1968 Memorandum (cf. Slide 6) stated that traditional
    structures were the most rigid in agriculture
   CAP focussed on a united market 
       Structural measures remained in the hands of MSs
       Had to be harmonized in order the ensure fair competition
EAGGF-Guidance and socio-structural measures
   At the outset (1962) it was stipulated that guidance should
    receive ⅓ of the Fund (10% in reality)
   1968 Memorandum: The Community should take common
    measures based on common criteria
   Reform of structural funds (1988) focuses EAGGF on
       Objective 5a (adaptation of farm structures)
       Objective 5b (development of rural areas)
       Objective 1 (lagging-behind regions)
   1993 reform:
       Procedures simplified
       Financial monitoring and assessment systems strengthened
       Financing through Community Support Frameworks or Single
        Programming Documents

Socio-structural measures – 2
   Adjustments of agricultural structures (Objective 5a)
       Market policy accompanying measures, which help re-
        establish the balance between production and market capacity
       Measures to support farm incomes and to maintain viable
        agricultural communities in mountain, hill or less-favoured
       Concrete measures to encourage the installation of young
        farmers of either sex
       Measures to improve the efficiency of the structures of
        holdings and working conditions and promoting the
        diversification of production, including the production of non-
        food agricultural produce
       Measures to improve the marketing and processing of
        agricultural and forestry products                              19
Socio-structural measures – 3
   Rural development & structural adjustment of lagging-behind regions
    (Objectives 1), besides the a/m:
       The conversion, diversification, reorientation and adjustment of production
       The promotion, quality labelling and investment for quality of local or
        regional agricultural and forestry products
       Individual or collective land or pasture improvement
       Irrigation and improvement of drainage systems
       Encouragement for tourist and craft investment
       Development and exploitation of woodlands, protection of the environment
        and maintenance of the countryside
       Development of agricultural and forestry advisory services and improvement
        of agricultural and forestry vocational training
       Financial engineering measures for agricultural and forestry businesses and
        for businesses for the processing and marketing of agricultural and forestry

Support measures for CAP reform
   Introduced alongside the market measures of 1992
   Financed by the Guarantee section
   Favouring the early retirement schemes for farmers and
    farm labourers
       Aged at least 55 whose income would be too low to subsistence
       50% subsidy by the Community (75% in Objective 1 regions)
   Promote the use of land for forestry, ecological or leisure
   Introduce or maintain protection schemes which favour the
    protection of environment, the landscape and natural
       Set-aside contracts for 20 years

Recent developments
   2003 reform
       Strengthening the trends of previous reforms
       Modulation: more subsidy going to rural development
       Cross-compliance (direct payments made only if
        ecological and hygienic requirements respected)
       Single payment – aid allocated to farmers irrespective of
        their production (national ceilings)
   Changes in 2007:
       European Agricultural Guarantee Fund
       European Agricultural Fund for Rural Development –
        EAFRD (rural development regrouped from cohesion
        policy to agriculture)

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