The impact of CAP reform on farmers’ plans for the future: Some evidence from South West England

This paper considers farmer intentions following the implementation of the 2003 CAP reforms, identifies the extent to which these plans have been influenced by the introduction of the Single Payment Scheme (SPS) in 2005 and considers the implications in terms of likely structural change (i.e. changes in the deployment of land, labour and capital). The analysis uses data from a large sample survey of farmers in South West England and the results indicate that CAP reform is not stimulating rapid agricultural restructuring, rather it appears to be reinforcing many existing trends towards diversification and an increasing polarisation between the largest and smallest farms. CAP reform is impacting unevenly on the farm community and different farming situations are associated with different types of reaction. Market signals may become a more powerful driver of farmer behaviour, in which case the 2003 reforms will have proved successful in providing farmers the freedom to farm without coupled subsidies. On the basis of the results presented in this paper though, only a minority of farmers seem both well placed and well disposed to exploit such opportunities.     

Decoupled payments to facilitate CAP reform

There is a long tradition of advocacy of decoupled compensation payments to facilitate reform of agricultural policies. To illustrate this, we cite some of the European literature of the 1960s and 1970s. In the 1980s and 1990s, decoupled payments were frequently proposed, but despite years of discussion there is still surprisingly little agreement on the role that decoupled compensation payments can play in facilitating common agricultural policy (CAP) reform. The Uruguay Round Agreement introduced the so-called blue and green boxes; and the MacSharry and Agenda 2000 reforms have made extensive use of the blue box to shelter an increasing proportion of CAP support from international scrutiny. Blue-box payments are not, however, fully decoupled; and cross-compliance will not turn them green. The Peace Clause provides limited protection for the blue box, but if this were to lapse in 2003/04 the blue-box provisions would be of little worth. We assert that the EU must engage in radical reform of the CAP, and make truly decoupled and transitory compensation payments the central element of that reform. This could best be facilitated by allocating transferable bonds to the present generation of farm operators, with annual payments made to the bond owner. We set out the essential conditions that must be met for a bond scheme to be put in place, and explore in a very preliminary fashion the budgetary implications.     

A community perspective

The accession of Greece to the European Community (EC) will be welcomed. Although it indicates the success of European integration, the second enlargement will bring profound changes. It is questionable whether the Common Agricultural Policy (CAP) in its current form, can deal with the central issue raised by Greek accession — income distribution. This article outlines how Greek accession will affect the CAP and indicates implications for future policy making.     

Agriculture in the EEC taking stock

The focus of this assessment is the European Community's ‘Stocktaking of the Common Agricultural Policy’. While the CAP has attracted considerable scrutiny and controversy, the Stocktaking represents the most authoritative review of agricultural policy from within the EEC bureaucracy. The authors evaluate first the extent to which the Stocktaking's own analysis is a fair reflection of achievements under the objectives which the CAP has set for itself. Second, they ask whether the proposals for policy reform advocated in the Stocktaking are appropriate. They conclude that the Stocktaking's proposals — and their subsequent interpretation within the EEC — are not adequate to tackle the problems facing EEC agriculture.     

Disentangling the consensus frame of food security: The case of the EU Common Agricultural Policy reform debate

This article addresses which food security frames can be identified in the Common Agricultural Policy (CAP) post-2013 reform process, and which actors deploy particular food security frames. The concept of frames refers to relatively distinct and coherent sets of meaning attributed to a concept, such as food security. The article shows that in the European Union (EU) food security is a consensus frame which can be broken down in six conflicting and overlapping sub-frames and which has complicated the debates about the future of the CAP. We demonstrate that during the CAP-reform debates of 2009–2012 a variety of food security arguments were deployed by a broad range of stakeholders, who attached different meanings and made different claims about the relationship between the CAP and food security. Inductive frame analysis reveals that the consensus frame of food security can be broken down into six conflicting and overlapping sub-frames: (1) the productionist frame, (2) the environmental frame, (3) the development frame, (4) the free trade frame, (5) the regional frame, and (6) the food sovereignty frame. Each of these frames was invoked by a specific group of stakeholders, whereby the productionist and environmental frames were deployed most often. The European Commission, meanwhile, invoked various frames at the same time in its communications. As a result of these various framings of the relationship between the CAP and food security, a clear political vision on this relationship is lacking. We conclude that politicians and policymakers may need to develop a coherent vision on what food security entails, and on how the CAP could contribute to both European and global food security.     

The disappearing budget constraint on EU agricultural policy

Concern over budgetary costs has been the traditional driving force behind changes to the EU's Common Agricultural Policy. While the recent MacSharry reform of this policy was more related to external pressures arising from the need to reach an agreement on agriculture in the GATT Uruguay Round, many expect the budgetary constraint to re-emerge towards the end of this decade, particularly in the light of the impending accession of a number of Central and Eastern European countries (CEECs). This paper argues that it is unlikely that there will be any budgetary need to further reform Europe's agricultural policy to accommodate the CEECs. Applying the agricultural guideline to estimate resources and using a simple forecasting model of FEOGA Guarantee budget expenditure, the paper demonstrates that, under a range of plausible assumptions for the key variables affecting resources and expenditure, a significant positive margin should emerge between available resources and the cost of EU agricultural policy by the beginning of the next decade. This margin should be sufficient to pay the estimated costs of extending the present CAP to the CEEC countries without further significant reform. However, even though the budget cinstraint on EU farm policy may disappear, other factors, such as GATT disciplines and concern about agriculture's impact on the environment, will remain as pressures for further CAP reform.     

Prospects for reform of the Common Agricultural Policy

Burgeoning stocks and increasing budgetary pressure are leading to mounting criticism of the CAP. Recent experience suggests that these internal pressures are unlikely to precipitate fundamental reform in the short to medium term because of the opportunity to defer expenditure and to transfer costs to the national governments. It is argued that rather than seeking a market-oriented solution, the Community appears set on continuing to make ad hoc policy adjustments aimed at minimizing expenditure and overcoming problems arising in particular sectors.     

Analysing agricultural policy reforms under transition in Bulgaria

The elaboration of an appropriate incentive system, including measures of agricultural price and trade policy has important consequences for Bulgarian agriculture. This paper offers a brief picture of the process of reform towards the establishment of a market economy in Bulgaria, as well as of the main developments in its agricultural sector. An analysis is then presented of the impact of alternative agricultural price and trade policy scenarios for the period up to 2002. The results show that the impact of price and trade policies is modest when compared to that of technological change and the increase in incomes. Adoption of the CAP will stimulate production, decrease demand and have strong adverse effects on consumers and taxpayers and wider negative effects on the competitiveness of the food industry. Thus the issue of extending financial support for structural policies rather than granting direct aid requires further investigation.     

Responding to the CAP: Alternative strategies for the USA

What alternative strategies are available to the USA in its farm trade conflict with the European Community? Five strategies are examined here - adjudication, negotiation, retaliation, collusion and competition. Both adjudication and negotiation within GATT are described as unlikely to succeed as a first step. Retaliation and collusion are seen as dangerous for US farm trade interests. Competitive export pricing, made possible through domestic farm policy reform and fiscal policy discipline, is endorsed as the best available US response to the CAP.     

National interests and the CAP

Development of the CAP is heavily circumscribed by differing national interests reflecting the usual agricultural policy conflicts between different regional and sectoral interests. But as a supranational policy with principles of community preference and common financing, the CAP also redistributes the burdens and benefits of agricultural support between Member States. The implications of these features of the CAP with reference to specified alternative policies are explored and conclusions drawn. The conflict between national and supranational interests is inadequately reflected to decision makers; the single instrument of price support at a common level is inadequate to meet a mix of differing national objectives; and, the assumption that the Common policy serves unification and integration of the Community may be incorrect.     

Jobs and agricultural policy: Impact of the common agricultural policy on EU agricultural employment

This paper investigates the relationship between EU agricultural subsidies and the outflow of labor from agriculture. We use more representative subsidy indicators and a wider coverage (panel data from 210 EU regions over the period 2004-2014) than has been used before. The data allow to better correct for sample selection bias than previous empirical studies. We find that, on average, CAP subsidies reduce the outflow of labor from agriculture, but the effect is almost entirely due to decoupled Pillar I payments. Coupled Pillar I payments have no impact on reducing labor outflow from agriculture, i.e. on preserving jobs in agriculture. The impact of Pillar II is mixed. Our estimates predict that an increase of 10 percent of the CAP budget would prevent an extra 16,000 people from leaving the EU agriculture sector each year. A 10 percent decoupling would save 13,000 agricultural jobs each year. However, the budgetary costs are large. The estimated cost is more than € 300,000 per year (or more than € 25,000 per month) per job saved in agriculture.     

Demand for dairy products in the EU

In the EU dairy sector, given the remaining high protective tariffs and the quota system, the main factor that drives dairy product market prices is the demand. This paper evaluates the development of demand in the EU and presents estimates of consumption trends and forecasts for the future as well as estimates of elasticity with respect to prices and income in two major EU consumer countries: France and Italy. We use two methods to estimate the development of demand for dairy products, one based on a multi-stage demand system and another based on a single trend equation. The two methods generally lead to the same qualitative results but trend projections are larger using the demand system approach which is based on a shorter data period. This difference is thus partly explained by the fact that high trend projections are not sustainable over a long period. The results show a decreasing consumption of butter and fluid milk and an overall growth in protein and fat consumption. Nevertheless, the increase in fat consumption should be more moderate than the consumption of protein. The results also show that the demand for dairy products is relatively price inelastic but is more sensitive to changes in income (especially for butter and cheese categories). As shown by the use of a partial equilibrium model of dairy markets, the likely impact of the CAP reform strongly depends on the development of demand for dairy products in the EU. More research effort on demand analysis is therefore crucial in order to assess the impact of reforms or trade negotiations more accurately and effectively.     

The effects of government policies on agricultural input markets

Agricultural policies in most developed countries involve elements of price support. The primary objective appears to be the support of farm incomes, but effects of the policies are more wide ranging than this. The impact of price support on agricultural input markets in the UK is highlighted in this article and it is shown that the main effects of raising farm prices are to increase the wealth of landowners, increase capital intensity and reduce employment and wages of hired labour. These are not generally recognized as primary goals of the CAP. It is suggested that the British government might offset some of these effects through judicious reduction of capital grant rates.     

Economic theory,intuition and the CAP

From newspapers, journals and books we know a great deal about economics, policies and politics. Nevertheless, some theoretical problems of economic policy are overlooked too frequently. As we know, economics deals with problems of choice. The grand schemes to cure European agriculture, eg the Mansholt Plan, the Védel Plan and the Van Riemsdijk Plan, are well known as well as the more modest plans for a modification of the CAP put forward by the Dutch economist Horring. ¹ Each plan was introduced to improve the CAP, but did not indicate why the other alternatives were inferior. Around 1970, for example, there were at least five alternatives: the CAP as it was, or as it should be according to one or other of these four plans.     

The two dimensions of policy impacts on economic cohesion: Concept and illustration for the CAP

Given the growing importance of cohesion policy within the European Union (EU) during the last two decades, public and scientific interest in the role of EU policies for regional disparities has risen continuously. Recent empirical studies on the impacts of the Common Agricultural Policy (CAP) on economic cohesion have been strikingly diverse in their principal findings. Whereas some studies suggest positive overall effects on economic cohesion, others stress exactly the opposite. One major reason for the ambiguous results is that a single agreed-upon measure of economic cohesion is lacking. We propose a concept that distinguishes between two dimensions of policy impacts on economic cohesion: (i) the redistributive impact at a defined period of time and (ii) the change of the redistributive impact over time. The first dimension addresses the question whether a policy makes the distribution of a target variable, e.g., income, more equal or unequal at one point of time. The second dimension covers the impact of the policy on the disparity of the same variable over time, i.e., the impact on convergence. An empirical illustration of the concept for 13 NUTS 1 regions in Germany over the period 1991–2009 reveals that the two policy impacts of the CAP are partly contradictory for the two dimensions. It is shown that the CAP fosters economic cohesion by reducing regional disparities in each individual year. With regard to redistributive impacts over time, we find that CAP transfers leave income convergence largely unaffected for society as a whole. Within the agricultural sector, it leads to a convergence of receipts per farm whereas it induces a divergence of farm receipts per hectare.     

Assessing the influence of direct payments on the rental value of agricultural land

Economic theory suggests that coupled and decoupled direct payments have different impacts on agricultural rental values because of the different production responses associated with these payments. This study investigates the impact of both coupled and decoupled EU CAP direct payments on rental values in Northern Ireland, using panel data taken from the farm business survey for the period from 1994 to 2002. Theoretically, agricultural land rents are a function of expected market returns and expected associated direct payments. The unobservable nature of expected returns means that actual market returns must be used as a proxy for the former in the empirical specification. As a consequence, the problem of bias due to expectation error arises. Using a GMM technique to take account of this problem, the results of this study show that the impact of CAP direct payments on rental values depends on the type of payment and on the nature of the production characteristics of the associated agricultural commodity.     

Changing EU agricultural policy discourses? The discourse analysis of Commissioner’s speeches 2000–2007

This paper is a combination of political economy and critical discourse analysis of public texts about the common agricultural policy (CAP) by concerned agents and the EU’s agricultural Commissioner in the period of November, 2004 until October, 2007. The analysis reveals how concerned agents articulated three competing discourses (neomercantilism, multifunctionality, and neoliberalism). It also shows that elements of the discourse of neoliberalism in the Commissioner’s speeches, despite her use of different discourses for different audiences, are becoming more and more important in order to facilitate further reforms and liberalisation of the CAP.     

Domestic and international impacts of the rice trade policy reform in the Philippines

Faced with high domestic rice prices that have fueled inflation above the 2018 target and penalized poor consumers the most, the government of the Philippines has decided to abandon the quantitative restrictions on imports and replace them with tariffs. This paper uses a global rice model based on a partial equilibrium framework to assess the possible impacts of this reform on imports, production, consumption and prices. In contrast with past similar studies, we address three key concerns (i) the heterogeneity in farm price across 16 regions in response to the combined effect of the tarriffication and the average historical trend in productivity increase at 1.5% between 2001 and 2018, (ii) the differentiation of imports by origin partly due to the different tariffs applied to countries within and beyond the Association of South East Asian Nations, and (iii) the effect on domestic prices in third countries. The simulation results suggest that the reform would increase imports by 2.47 million tons (20.7%) in 2019. We also find a large decline in farm prices and retail prices respectively by PhP 6.1/kg (30.1%) and PhP 7.6/kg (17.4%) in 2019 that explains an increase in rice consumption. We estimate the fall in total inflation at 1.2% in 2019 but less over time. Further, the large fall in farm prices in 2019 is shared quite evenly among regions in the short term but returns to pre-reform levels in the near term. Using a higher price elasticity of supply for one region obtained from panel data surveys, we show a more pronounced decline in production than the national average. Such differentiated results confirm the relevance of using a regionally disaggregated model to design more targeted policies. We also show a slight increase in world prices, which led to small increases in the domestic prices of South and Southeast Asian rice markets. While this reform is largely pro-poor consumers, policy makers would need to use the additional tariff revenue to help rice growers either increase their competitiveness and modernize their rice production or shift to other crops.     

Common Agricultural Policy effects on dynamic labour use in agriculture

The aim of this study is to investigate the effects of direct payments and rural development measures of the EU’s Common Agricultural Policy (CAP) on employment in agriculture. We work with a dynamic labour demand equation augmented by the full set of policy instruments of the CAP, which is estimated on a panel dataset of 69 East German regions. We present results for four estimators which differ in how they eliminate the fixed effects and how they address the endogeneity of the lagged dependent variable. The results suggest that there were few desirable effects on job maintenance in agriculture. While there is some indication that investment subsidies have halted labour shedding on farms, a rise in the general wage level reduced labour use in agriculture. Changes in direct payments had no employment effects. Generally, labour adjustment exhibits a strong path dependency.     

The case for land reform in the Caribbean

The Special focus section of Food Policy has often included articles describing the process of land reform or calling for land redistribution in specific countries, notably Nigeria and Zimbabwe. This article puts a general case for the redistribution of land, calling on research in Asia, Africa and Latin America. Arguments for land reform in the Caribbean stem from the existence of fragmented plots of land which need to be consolidated to make small farms more efficient; the need to make idle land from the plantation sector available to the farming population; and, the need to increase the involvement of farmers and the rural poor in rural development.