European Union Common Agricultural Policy - Report Example

Table of Contents Table of Contents 1 Introduction 2 2 The Problem 3 3 Reform Policies 5 4 Conclusion: Reform Challenge 6 5 Works Cited 8 6 Annotated Bibliography 10 1 Introduction The foundations for a European Union Common Agricultural Policy were set down in Article 39 in the Treaty of Rome. The goals of the EU Common Agricultural Policy, known as CAP, are to increase agriculture production in the EU, to make sure that the rural workers in the EU earn a good living, to ensure the economic development of EU rural areas, to stabilize the agricultural market and to make sure that a sufficient supply of agricultural products are available to EU consumers at a reasonable price.1 In 1958, the Common agricultural policy at the Stresna Conference emphasized these objectives.2 The development of the EU Common Agricultural Policy led to the creation of a system for the establishment of common agricultural policies and support payments, including levies and price and structural supports. It is important to mention that the price of agricultural products is not set by the farmers but by the Council of Ministers through the European Agricultural Guidance and Guarantee Fund (EEAGF).3 As regards agricultural trade policies, these are the responsibility of the Special Committee for Agriculture.4 As a result of these measures, or to be more specific, because of CAP, the price of agricultural produce in the European Union are not related to the world market price and levies on agricultural imports ensure that cheap goods do not enter the EU agricultural produce consumer market.5 While CAP is based on the welfare of rural communities and areas, the fact is that it is not a realistic policy and is the source of economic problems that can only be resolved through the reform of CAP and the liberalization of EU agricultural trade policy. 2 The Problem The EU CAP is a source of several problems. In the first place, creating a common agricultural policy means reforming the agricultural strategies and policies which are used in twenty-five member countries. Establishing and implementing a common policy for the Western European countries was difficult but the enlargement of the European Union to include Eastern European countries made it very difficult. It did not just mean that the new member countries had to abide by CAP policies but that they had to change their agricultural policies and strategies in order to be able to adhere to CAP.6 A second important problem is the economic consequences of CAP. As a result of CAP, the price of agricultural goods was raised and, as mentioned earlier, these prices were not related to those on the global market. In addition, to make sure that cheaper agricultural goods did not enter the EU market and compete with EU agricultural produce, levies were imposed on imported goods to make up the price difference. As the price of agricultural goods went up to their highest levels and because EU agricultural producers were protected from competition, there was a greater incentive to produce and the EU eventually became the world's second largest agricultural exporter. 7 The problem developed when the price of agricultural goods dropped on the international market but the price of EU agricultural goods remained high. This meant that EU farmers continued to produce surplus and that the EU had to continue to support its farmers. In 1988, 62% of the EU's budget went to agricultural goods.8 This was a serious economic problem and the EU could not any longer support CAP under these circumstances. Its economic cost was too high. The identified problems are serious. The first refers to the difficulties of implementing a common agricultural policy and the second to the difficulties of economically supporting these policies. Therefore, for the European Union leaders it was clear that these problems could only be solved through the reform of CAP. 3 Reform Policies CAP reforms were first implemented in 1988. The first set of reforms focused on limiting agricultural outputs and, in this way, reduces the surplus that the EU was producing. This round of reforms was not successful for two reasons. First of all, the maximum limit for crop production that was established was extremely high and, in the second place, the penalties that were established for violating these limits were not effective. As a matter of fact, the penalties were so low that it was more profitable for farmers to violate them, sell their crop and pay the penalty.9 The 1992 MacSharry reforms, however, were more serious and effective. It shift support payment from funds and intervention to transparent direct payments. The result was that the support payments, which took 90% of the EEAGF budget from 1989 to 1991, dropped to 59% from 1995 to 1997. In other words, this set of reforms reduced the burden of agricultural support payments on the EU. Of equal importance is that the MacSharry reforms allowed the EU to reach an agricultural trade agreement at the Uruguay WTO talks.10 The latest CAP reforms were approved by the EU Council of Ministers and the EU agricultural Commissioner in 2003. These reforms emphasise the separation of production from support payments. They also index subsidies from previous years for the purpose of giving farmers the option of the crops that they will grow without their choice affecting in a negative way, the support payments they receive. Lastly, these reforms also emphasise the importance of making sure that CAP is made more consistent with WTO rules. Therefore, even though it does not remove subsidies, it reduces them. This makes the agricultural produce market in the EU more competitive and more closely linked to the international market.11 The MacSharry reforms are necessary for two reasons. The first is that the will reduce the economic cost of CAP on the EU. This is extremely important since, as mentioned CAP was an economic problem to the EU and its cost was difficult to support. The second is that the reforms mean that the EU will liberalise its agricultural trade policy and in this way, there will not be such a great difference between the price of EU agricultural produce and the price of these same produce on the global market. The implementing of these reforms, however, is a problem. 4 Conclusion: Reform Challenge Even though the research has not mentioned the difficulties of implementing the reforms, the discussions on the EU's Common Agricultural Policy and the reform policies gives a clear indication of the reasons why implementing reforms is difficult. In the first place, European union farmers have been protected from competition and the liberalization of the EU agricultural produce market for almost two decades. It is not an issue of their not being able to confront free and fair competition but more of an issue of their not being willing to do so. Therefore, agricultural producers are resisting these reforms because they find them to be directly against their interests and welfare.12 Secondly, and also like it was briefly mentioned in the argument, the expansion of the EU is a problem where agricultural policy and reform is concerned. The new member states are accustomed to different agricultural policies and to higher levels of subsides. In addition, they are not fully accustomed to free competition. These problems are only worse as a result of the fact that the rural areas are underdeveloped and both rural areas and communities require a level of support that is contradicting to the concept of free trade.13 Therefore, there is a resistance to these reforms on the local level of farmers and rural communities and on the national level. Despite there is resistance to agricultural reforms, the fact is that the European Union has no choice except to reform CAP. Without reforms, the European Union will continue to support the agricultural sector more than it can afford to, resulting in economic problems. Additionally, without reforms, the EU will be acting against WTO and fair trade agreements and the consequence will be that EU agricultural produce prices will continue to be very far from the global market price. It is, thus, that the EU must continue to implement reforms to its Common Agricultural Policy. 5 Works Cited European Union Fact Sheets. "The Treaty of Rome." www.europarl.eu.int/factsheets/4_1_1_en.htm European Commission. "Agriculture: Continuing the Reforms." October 2001. http://trade-info-cec.eu.int/2001newround/agr.htm Davis, Christina. "A Conflict of Institutions: The WTO and EU Agricultural." Paper prepared for the 2002 Annual Meeting of the New England Political Science Association, Portland, Maine, May 3, 2002. http://www.princeton.edu/cldavis/files/davisnepsa.pdf K.A. Ingersent, A.J. Rayner and R.C. Hines (eds.) The Reform of Common Agricultural Policy. New York: Palgrave Macmillan, 1998. Kosior, Katarzyna. "New Stakeholders in the Common Agricultural Policy: A Real Burden To Reform Processes in the Enlarged European Union" European Law Journal, 11. 5(2005): 566-585, Moravcsik, Andrew. The Choice for Europe: Social Purpose and State Power from Messina to Maastricht. New York: Cornell University Press, 1998. Paarlberg, Robert. "Agricultural Policy Reform and the Uruguay Round: Synergetic Linkage in a Two-Level Game" International Organizations. 51.3(1997): 413-444. Paterson, Lee Ann. "Agricultural Policy Reform in the European Community: A Three-Level Game Analysis." International Organisation. 51.1(1997): 135-165. Wolfe, Robert. Farm Wars: The Political Economy of Agriculture and the International Trade Regime. New York: Palgrave Macmillan, 1998. 6 Annotated Bibliography European Union Fact Sheets. "The Treaty of Rome." www.europarl.eu.int/factsheets/4_1_1_en.htm This is a primary source as it is the text of the treaty for the foundation of the European Union. European Commission. "Agriculture: Continuing the Reforms." October 2001. http://trade-info-cec.eu.int/2001newround/agr.htm This article is a report issued by the European Commission on the necessity of reforming the common agricultural policies and the strategies for doing so. Davis, Christina. "A Conflict of Institutions: The WTO and EU Agricultural." Paper prepared for the 2002 Annual Meeting of the New England Political Science Association, Portland, Maine, May 3, 2002. http://www.princeton.edu/cldavis/files/davisnepsa.pdf Davis' article is a very informative account of the conflict between CAP and the WTO. The European Union, or its member states, are parties to WTO and, therefore, are supposed to promote free trade. However, where agriculture is concerned, they do not and instead, practice protectionism. This conflict of interests is investigated by Davis and its consequences are examined. Ingersent, K.A., A.J. Rayner and R.C. Hines (eds.) The Reform of Common Agricultural Policy. New York: Palgrave Macmillan, 1998. This book is a comprehensive analysis of CAP and agricultural policy reforms. It explains the problems with CAP and the way in which each reform stage addressed, or tried to address, and resolve these problems. Kosior, Katarzyna. "New Stakeholders in the Common Agricultural Policy: A Real Burden To Reform Processes in the Enlarged European Union" European Law Journal, 11. 5(2005): 566-585. Kosior draws attention to the problems of the enlargement of the European Union from the perspective of the Common Agricultural Policy. The new member states, Eastern European countries, have different agricultural policies than the Western European unions. Implementing CAP regulations where these countries are concerned is going to be difficult and shall come at a high economic cost to the EU itself. Moravcsik, Andrew. The Choice for Europe: Social Purpose and State Power from Messina to Maastricht. New York: Cornell University Press, 1998. This book covers the historical roots of the European Union and explains the social, economic and political motivations for integration. It also covers all European Union policies, up to the date of the publication of the book, and among them, CAP. Paarlberg, Robert. "Agricultural Policy Reform and the Uruguay Round: Synergetic Linkage in a Two-Level Game" International Organizations. 51.3(1997): 413-444. This article explores the negotiations over agricultural policy which took place at the WTO, Uruguay rounds and the position of the European Union towards these negotiations. It clarifies the issues associated with agricultural policies which the EU refused to negotiate on, and those which it was more flexible towards. Paterson, Lee Ann. "Agricultural Policy Reform in the European Community: A Three-Level Game Analysis." International Organisation. 51.1(1997): 135-165. Peterson examines Cap reforms and critically analysis the shortcomings of each reform stage. She questions some of the reforms as an effective solution to the economic problems linked to CAP and explores the reasons why the EU did not engage in more effective and far-reaching reforms. Wolfe, Robert. Farm Wars: The Political Economy of Agriculture and the International Trade Regime. New York: Palgrave Macmillan, 1998. This book does not focus on the agricultural policy of the European Union, although it discusses it. Instead, it looks at the importance of agriculture to national and regional economies and why agriculture often emerges as an issue in foreign policy. Read More