Common Agricultural Policy [1 ed.] 9780567344373, 9781841271262

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The Common Agricultural Policy Contemporary European Studies, 9

Series Editor Clive Archer Co-Editor Judy Batt

OTHER BOOKS IN THE SERIES

The Enlargement of the European Union GRAHAM AVERY AND FRASER CAMERON Paying for Europe IAIN BEGG AND NIGEL GRIMWADE The Politics of European Union Regional Policy: Multi-Level Governance or Flexible Gatekeeping ? IAN BACHE Democracy in the European Union CHRISTOPHER LORD Europe's Elected Parliament JULIE SMITH Association: Stepping-Stone or Alternative to EU Membership ? DAVID PHINNEMORE The Foreign and Security Policy of the European Union: Past, Present and Future FRASER CAMERON The United States and the European Union: The Political Economy of a Relationship TERRENCE R. GUAY

The Common Agricultural Policy Robert Ackrill

Sheffield Academic Press

Copyright © 2000 Sheffield Academic Press Published by Sheffield Academic Press Ltd Mansion House 19KingfieldRoad Sheffield SI 19AS England

Typeset by Sheffield Academic Press and Printed on acid-free paper in Great Britain by Cromwell Press Trowbridge, Wiltshire

British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library

ISBN 1-84127-126-8

Contents List of Boxes List of Figures List of Tables Series Foreword Preface Acknowledgments Abbreviations 1.

The Background to Government Involvement in Farming: The What, Why and How of Agricultural Support Policies in Europe

Introduction to Chapters 2-5 2. 3. 4. 5. 6.

The Development of the CAP: Decisions on Prices, Indecision on Reform The Pressures for Reform of the CAP New Century, Old CAP? Understanding the Process of CAP Reform An Assessment of the CAP: From Article 39 to Agenda 2000

Bibliography and Further Reading General Index Author Index

6 6 6 9 11 12 13

15 46 49 77 115 170 192 225 239 243

Boxes 2.1 2.2 3.1 3.2

The 1970 Agreement on Own Resources 51 MCAs and the Two Price Decisions Taken by the Council of Agriculture Ministers 53 The Green Box and the Blue Box: Definitions of Policies 102 The Uruguay Round Agreement on Agriculture (URAA): A Summary 103

Figures A3.1.1 The Evolution of Own Resources A3.1.2 The Evolution of Expenditures 6.1 Growth in the Volume of Agricultural Production 1973-97 6.2 Total Cereals Area and Yield, EU15, 1973-98 6.3 The Evolution of the Three Income Indicators, 1980-99 6.4 Ratio of Real (1990) Output Prices to Real Input Prices, 1975-97

109 109 194 194 198 199

Tables 1.1 1.2a 1.2b 1.3 1.4

Agriculture's Share in Economic Activity: 1950, 1973 and 1997 Percentage Distribution of Farm Holdings by Size and Total Number of Farms in the EU, 1975 and 1995 Percentage Distribution of Utilized Agricultural Area by Farm Size, Total and Average UAA in the EU, 1975 and 1995 Cereals Prices under the Price Fork for 1964/65 and Common Prices 1967/68 Dairy and Livestock Prices under the Price Fork and Common Prices

17

18

19

36 37

List of Tables 1.5 Al.la Al.Ib 2.1 2.2 2.3 2.4 A2.1 3.1 3.2a 3.2b 3.3 3.4 3.5 A3.1.1 A3.1.2 A3.1.3 A3.2.1 4.1 4.2 4.3 4.4 4.5 4.6

The Transitional Funding Arrangements for the CAP The Common Agricultural Policy Crop Regimes in the Late 1960s The Common Agricultural Policy Livestock and Animal Product Regimes in the Late 1960s EC Total Percentage Price Changes in ECU and National Currency Terms (including within-year green rate adjustments) The 1988 Stabilizer Agreement: A Summary Operation of the Cereals Stabilizer Regime, 1988/89 to 1991/92 Cereals Price Cuts Agreed under the MacSharry Reforms EU Self-Sufficiency from 1958, through Four Enlargements to the Late 1990s The Evolution of Crisis in the EC Budget, 1979-84 The Financial Perspective 1988-92, 1988 Prices The Financial Perspective 1988-92, Current Prices (1992) The Cost of the Past: Financial Mismanagement and Outstanding Liabilities in the EC Budget, 1983-87 Overvaluation of Agricultural Stocks, 1982-87 Arable Expenditures, 1992-2000 Total CAP Spending (billion ECU) and Percentage Shares by Commodity Total CAP Spending (million ECU), CAP Payments to Member States as a Percentage of Total CAP Spending and of Total EU Payments Total EU Own Resources (million ECU) and Percentage of Total from each Member State EU Intervention Stocks 1973-99 Net Positions of Significant Budget Contributors, 1997 The Evolution of the Agenda 2000 Reforms in the Arable Sector The Evolution of the Agenda 2000 Reforms in the Beef Sector The Evolution of the Agenda 2000 Reforms in the Dairy Sector A Comparison of the EU15 and the Countries of Central and Eastern Europe, 1996 Average Farm Size, Hectares, Before and After 1989

7

37 44 45 60 63 64 67 74 87 90 90 91 92 94 110 111 112 114 119 120 121 125 133 134

8 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 5.1 6.1 6.2 6.3 6.4 6.5 6.6

The Common Agricultural Policy Total Agricultural Area by Farm Type, Percentage, Before and After 1989 Principal Means of Land Reform Selected Producer Prices in the CEECs as a Percentage of the EU Price Percentage Producer Subsidy Equivalents for the EU and Selected Transition Economies The Composition of Agricultural Support The AMS: Impact of Exchange Rate Movements URAA Subsidized Grain Export Limits and Estimates of Exportable Surpluses Some Estimates of the CAP Costs to the EU Budget of EU Enlargement The Impact of the MacSharry Reform on the Budget and Trade Effect of the CAP Employment in Agriculture, Hunting, Forestry and Fishing, 1960-97, EU12 Changes in Income Indicators by Member State, 1996 to 1998/99 Net Value Added per Agricultural Work Unit, by Farm Size Net Disposable Income of Farm Households (percentage of all households) The Efficiency of EU Transfers Structural Spending 1993-98

134 135 139 141 141 143 150 157 182 196 197 199 201 202 212

Series Foreword This publication marks the start of the third year of Contemporary European Studies and the collaboration between the University Association for Contemporary European Studies and Sheffield Academic Press. Both parties are pleased by the way that the series has become established as one means to serve the interests and needs of those teaching and researching in contemporary European Studies. We feel that we have been justified in starting a series that deals with a wide range of European issues—albeit most of them related to the European Union— and provides a number of authoritative texts. This book deals with one of the key policies of the European Union (EU), and its predecessor in the European Communities, that of the Common Agricultural Policy (CAP). Despite attempts to trim expenditure on agriculture and the rise of other policy areas, the CAP still accounts for a generous portion of the EU's budget. It not only affects the farmer, but also the environment, the wholesaler and retailer and the consumer, as well as agriculture in other parts of the world. Robert Ackrill's account of the CAP provides a history of its creation and growth, and explanations of how and why it functions as it does. He looks forward to the problems that will face the CAP with the enlargement of EU membership and with the development of multilateral trade agreements affecting agriculture. The book explains some of the difficult concepts behind the CAP in terms understandable to the student, or indeed to those who may have to teach the subject. At this stage of the life of the series, I am pleased to place the editorial reins in the capable hands of Judy Batt and Jackie Gower. I will remain on the Editorial Board, together with Stephen George, whom I succeed as chairman of UACES. Stephen was one of the founders of the series and without his support and hard work it would not have flourished. A word of thanks should also go to Rebecca Cullen who has retired as project editor for the series and whose enthusiasm and

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The Common Agricultural Policy

capability helped us produce—and market—high quality books. We welcome the new project editor, Elaine Bingham, and extend our thanks to the rest of the Sheffield Academic Press production team. Clive Archer Series Editor

Preface It would be a very long book indeed that addressed all elements of the Common Agricultural Policy (CAP). Even focusing on certain aspects has resulted in a book longer than intended—and thanks to Sheffield Academic Press for accommodating this. The decision has been taken to concentrate on the central activity of the CAP—market intervention aimed at supporting incomes earned from farming. This book focuses on the instruments of market intervention, the influences that have promoted changes to the policy and why this never results in the level of support being reduced. At the heart of this is the relationship between the CAP and the European Union (EU) budget, which provides a central theme for this book. While it is well known that the CAP is the most expensive EU policy, the influence that the budget rules of the EU have had on the CAP are usually less thoroughly discussed. Many other aspects of the CAP have been left out or covered only briefly. The CAP has a significant impact on the environment and on the food industry, but because these have not (so far) had a significant role in shaping the CAP, they are not discussed in detail. The lack of a role for the environment in shaping the CAP is offered as an indictment of the CAP and its processes. Farming structures are an important part of policy, but are only discussed here insofar as they relate to questions of farming incomes. The newly-evolving rural development policy may well become a central part of the CAP in the long run, but currently it plays only a minor role, so it is only discussed in this context. How this might change over time to become the primary provider of economic assistance to agriculture and the rural economy generally is covered briefly in a concluding section that speculates about the possible directions the CAP might take over the next few years.

Acknowledgments In writing this book, many people have helped, directly or indirectly (if I have missed you out, I am sorry). First, there are those who inspired me to study the CAP: Brian Hill, Bob Hine, Ken Ingersent and Tony Rayner at Nottingham and John Marsh and Alan Swinbank at Reading. Angela, Helen and Sue in the Nottingham and Leicester EDCs and Mary in the DG-VI library helped enormously in the search for information. Thanks to Nick Beard and David Hallam at Reading, Steve Ramsden at Nottingham, Alan Renwick at Cambridge, Jim Holding, Anthony Hynes and Catherine Riggs at MAFF; David Walker; Nicki Chandler and Anna Locke at LMC, Bill Liefert, Mitch Morehart, Sharon Sheffield and Edwin Young at the USDA and Steve Knight at the American Embassy in London, for their time and advice. Thanks to the many people on the UACES mailing list who responded so helpfully to my request for comments—if I have not done justice to your suggestions, I apologize. For reading through chapters and making invaluable comments, thanks to Wyn Morgan, Anthony Forster, Ken Ingersent, Ian Hodge and Adrian Kay. My thanks offered to Clive Archer as editor are a totally inadequate acknowledgment of his contribution in helping turn a monster of a text into something that people might actually find interesting and informative. My thanks to everyone who has ever helped in CAP policymaking, for creating a policy that is better at sustaining employment for economists than for farmers. Finally, there is Mum, whose strength and determination are a constant inspiration; and Ursula, for her support and belief in me and for helping me see over the last year that there is more to life than what you are about to read.

Abbreviations ACP AMS AWU BE BHA BSE BTE CAP CARPE CE CEECs Co AM COP COPA CRL CSE DBV DG VI EAGGF EC ECU EEC EMU EU EUA FADN FAIR FAO FAPRI FEOGA FFE FNSEA GATT

African, Caribbean and Pacific aggregate measure of support agricultural work unit budget effect Blair House Accord (I and II) bovine spongiform encephalopathy ('mad cow disease') budget and trade effect Common Agricultural Policy Common Agricultural and Rural Policy for Europe compulsory expenditure Central and Eastern European countries Council of Agriculture Ministers cereals, oilseeds and protein crops regime (or arable regime) Comite des Organisations Professionnelles Agricoles co-responsibility levy consumer subsidy equivalent Deutsche Bauernverband Agriculture Directorate General European Agricultural Guidance and Guarantee Fund European Communities European Currency Unit European Economic Community Economic and Monetary Union European Union European unit of account Farm Accountancy Data Network Federal Agriculture Improvement and Reform Act ('Freedom to Farm') Food and Agriculture Organization of the United Nations Food and Agricultural Policy Research Institute Fonds Europeen d'Orientation et de Garantie Agricole full-time farmer equivalent Federation Nationale des Syndicats d'Exploitants Agricoles General Agreement on Tariffs and Trade

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The Common Agricultural Policy

GDP GNP ha IGM IM impe LDP MAFF MCA MGQ NCE NVAfc OECD OEEC PFC PPM PSE PTE SAPARD

Gross Domestic Product Gross National Product hectares Interest Group Model Institutions Model intervention milk price equivalent loan deficiency payments Ministry of Agriculture, Fisheries and Food monetary compensatory amounts maximum guaranteed quantity non-compulsory expenditure Net Value Added at factor cost Organization for Economic Cooperation and Development Organization for European Economic Cooperation production flexibility contract Prominent Players' Model producer subsidy equivalent preferential trade effect Special Accession Programme for Agriculture and Rural Development skimmed milk powder sanitary and phytosanitary agreement in GATT state trading enterprise tariff-rate quota unit of account utilized agricultural area Uruguay Round Agreement on Agriculture United States Department of Agriculture value added tax World Trade Organization World Trade Organization Millennium Round

SMP SPS STE TRQ ua UAA URAA USDA VAT WTO WTO-MR

ll The Background to Government Involvement in Farming: The What, Why and How of Agricultural Support Policies in Europe Honour Yahweh with what goods you have and with the first-fruits of all your returns; then your barns will be filled with wheat your vats overflowing with new wine. (Prov. 3.9-10, Jerusalem Bible)

Introduction This book examines the Common Agricultural Policy (CAP) of the European Union (EU). In this context, it covers the commercial production of food in the land or animals raised on the land. At the edge of this definition come crops grown for non-food uses. It excludes food that comes from the sea and food that people produce on a very small scale, mainly for their own consumption. The primary focus will be on the commercial production of food in or on the land. Particular attention is paid to the role of governments in this activity. The government is typically not a food producer, but in virtually all developed economies it plays a key role in influencing private agents' decisions on food production. The CAP is one of the most pervasive of all EU policies, one of the most infamous and perhaps one of the most misunderstood. This first chapter aims to summarize the what, why and how of EU agricultural policy. First, an overview is provided of what the agricultural sector in the EU looks like, in order to understand what is being assisted by government. Secondly, the issue of why agriculture should receive assistance from governments is addressed. Thirdly, the question of how governments support agriculture is introduced. Over time, there have

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The Common Agricultural Policy

been massive changes within the agricultural sector of the EU, which contrasts with the lack of adaptation in agricultural policies. In subsequent chapters, the reasons for this policy inertia will be examined, as will its consequences. What? The Structure of Agriculture in the EU Governments focus many policies and considerable financial resources on agriculture, but just what is it, that is being supported? This section introduces a statistical picture of the agricultural sector in the Member States of the EU. An examination of structural and related policies is given in Chapter 6. When comparing across countries, across time and across data sources, issues of data compatibility arise. In all that follows, therefore, broad magnitudes are more important than exact figures. Table 1.1 places agriculture in the overall economy of the Member States, indicating its share both of employment and national income. Two general features are seen. First, agriculture's share of both employment and national income has declined considerably since 1950, when the 'Green Pool' negotiations first sought a common European policy for agriculture (see below). Secondly, the share of national income is consistently lower than the share of employment. This indicates that the contribution to national income per person from agriculture is less than that from other sections of the economy and implies that incomes too will be lower in agriculture. This is one reason behind such extensive government intervention in agriculture. Tables 1.2a and 1.2b compare, for 1975 and 1995, the number of holdings and total utilized agricultural area (UAA) by farm size for each Member State. Note that in every Member State, the total number of farms has fallen. Other than Italy (where, in the 1980s, the number of farms in the smallest category was higher than in 1975) and the UK (with a size distribution biased towards fewer larger farms), the number of farms has fallen by between one-quarter and two-thirds in just 20 years. Moreover, disaggregating by farm size reveals that, other than in Italy and the UK, the numbers of farms in the two smallest categories have fallen and in the two largest categories have risen. In Table 1.2b, a comparison across time can only be made for the EC9, as comparable FAO data were not available. For most of the EC9, the total UAA has fallen but the average farm size has risen, the latter being the greater in relative terms. This is what would be expected,

1. Background: The What, Why and How

17

Table 1.1: Agriculture's share in economic activity: 1950, 1973 and 1997 Employment 1950 1973 1997 Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Portugal UK Austria Finland Sweden

EC9 EU15

12 22 23 54a 49 32b

40a 39C 26d 19d 47 5 32C n.a.

18 n.a. n.a.

3.9 9.4 7.3 n.a. n.a. 11.9 25.1 16.3 9.5 6.6 n.a. 2.9 n.a. n.a. n.a.

2.7 3.7 2.9 19.9 8.3 4.6 10.9 6.5 2.4 3.5 13.3 1.9 6.9

9.0

n.a.

n.a.

5.0

7.7 3.2

National income 1950 1973 1997 8.8 20.0 12.3 33.5 35.0 n.a. 31.3 29.5 n.a. 12.9 26.8 6.0 16.4f n.a.

7.0 n.a. n.a.

4.2 9.0 3.5 n.a. n.a. 6.5 19.0 9.9 4.2e 5.8 n.a. 3.0 n.a. n.a. n.a.

1.1 2.4 0.8 5.9 3.3 1.9

5.4

n.a.

n.a.

1.6

3.4 2.5 0.7 2.6 2.4 0.7 0.9

0.7 0.4

a. 1951 b. 1946 c. 1954 d. 1947 e. estimated f. market prices All figures relate to agriculture, forestry and fisheries unless otherwise stated, n.a. denotes not available.

Sources: 1950: OEEC (1956). Employment is calculated as the percentage of the total active population. National income is calculated as the percentage of Gross Domestic Product at factor cost. 1973: European Commission, Agricultural Situation in the Community (1975). Employment is calculated as the percentage of total employment. National income is calculated as the percentage of Gross National Product at factor cost. 1997: European Commission, Agricultural Situation in the European Union (1998). Employment is calculated as the percentage of employed civilian population. National income is calculated as the percentage of Gross Domestic Product at factor cost.

Table 1.2a: Percentage Distribution of Farm Holdings by Size and Total Number of Farms in the EU, 1975 and 1995

% total Belgium Denmark Germany Greece Spain France Ireland Italy Luxembourg Netherlands Portugal UK Austria Finland Sweden