Impact of CAP on the Developing World - Essay Example

?This policy paper is for the attention of the Agriculture Minister of Britain, and is designed to explore whether: The CAP should be reformed, and if so why and how. Introduction: Since its introduction in 1962, the Common Agriculture Policy (CAP) of Europe has undergone many changes. Several reforms in the policy were introduced in different points of time in last 50 years. In the early years the aim was to ensure enough food for the European countries. The methods were: subsidizing the farmers and providing a support price to them. With the passing of years this policy has undergone different changes, because reality has changed. The food shortage of post-war Europe is not the reality today. Today CAP encourages farmers of EU to produce all types of fruits, vegetables, cereals and dairy products. The aim, now, is to produce enough food of good quality for the people of EU. Rather than focusing on only farming, the CAP of today’s EU focuses on a “diversified economic development in rural areas” and making sure rural people gets a fair standard of living (Agriculture 8Feb 2013). The focus is also on environment and welfare of animal. After 2012 the CAP has three priorities: (one) “viable food production”, (two) “sustainable management of natural resources”, “three balanced development of rural areas throughout the EU” (Agriculture and Rural Development, 6 Nov 2012). Should there be farther reform in the CAP policies (Agriculture 8Feb 2013)? The charts below shows how CAP evolved from 1971 to 2011 and shares of different budgetary allocations made in billion Euros: 1971 1984 1992 2005 2011 Source: (European Commission 2012) The CAP at Present: According to European Commission’s website on “CAP and agriculture in Europe- Frequently asked questions” the CAP budget is spent in the following three ways (Agriculture and Rural Development, 6 Nov 2012). 1. Farmers get a direct payment as an Income Support. To get this payment, they must meet the stringent norms of food safety. They should take care of environment and wellbeing of farm animals. 70% of the Common Agriculture Policy Budget is spent on this direct payment. 2. Rural development: this ensures that the farmers improve their farms and become more competitive. The environmental issues must be kept in mind while improving the farms. These payments are partly made by the European commission and the rest by the member countries. 20% of the CAP budget is spent on this area. 3. There is a provision of market support in case of destabilization in market during bad weather. Less than 10% of the total CAP budget is spent on this area (Agriculture and Rural Development, 6 Nov 2012). Some Facts about CAP: Currently 20 percent of the farmers get 80 percent of the CAP amount. This is because 80% of the farm-area is held by 20% of the farmers. For the countries joined EU prior to 2004, the amount received by a farmer is determined by the factors like the area they cultivate, and the model of aid taken up by their countries. The farmers of the countries that joined EU after 2004 get gets the payment on per-hectare basis. Currently there is no upper limit to the amount of aid received by a farmer (EU Facts 22Jan 2013). Number of cases of fraud is found to be low. According to the European Anti-Fraud Office, only an average 0.02% of the total budget allocation of CAP is misspent on fraudulent cases (European Anti-Fraud Office (17Jan 2013). According to a report posted on the Institute for the Study of Civil Society website civitas .org.uk the CAP budget was 31% of the total EU budget. CAP costs Britain as much as 10 billion pound per year, considering overall effects of CAP. About 75% of the farmers earn just five thousand pounds per year in the EU. And, their average income is about half of average income in other sectors (EU Facts 22Jan 2013). Challenges to CAP: In a communication from the European Commission to the Parliament, the Council and others titled “The CAP towards 2020: Meeting towards the food, natural resources and territorial challenges of the future” some challenges to CAP have been mentioned (European Commission, 18Nov 2010). These challenges are: Food Security: With the continuing growth of population worldwide, the demand for food will definitely increase. And EU must play its role of satisfying the demand. The citizens of EU demand good quality foods. They also like to have a wide variety of choice (European Commission, 18Nov 2010). Environmental and Climate Change: Some aspects of environment like landscape, biodiversity, climate stability etc. can be influenced by agriculture. The influence could be either positive or negative. Some farming practices might affect the environment and cause soil erosion, water scarcity, pollution, and loss of natural forest and biodiversity (European Commission, 18Nov 2010). Territorial Balance: “A growing number of rural areas have become increasingly driven by factors outside agriculture due to diversification of their socio-economic structure” (European Commission, 18Nov 2010). In rural areas agriculture primary sector represents about 5% of value addition and 16% of employment. Agriculture also influences the economic activities of the countryside: like tourism, food processing etc. Agriculture is also directly linked to traditions and social identity of some people (European Commission, 18Nov 2010). In a speech in the conference on public debate on “The CAP after 2013”, The Commissioner of Agriculture and Rural Development, Dacian Ciolos have pointed out several challenges that CAP faces today. Apart from the three challenges mentioned above, he also discussed on the following challenges (Ciolos, 7July 2010). “The European Union is not an island isolated from the rest of the world”: Globalization influences everyone, at the same time EU must contribute towards global food security. It should be careful about not blocking the progress of agriculture in developing countries (Ciolos, 7July 2010). “The economic challenge”: ‘Common risk prevention and crisis management rules’ must be strengthened (Ciolos, 7July 2010). The capability of the agriculture sector to invest, innovate and attract young generation is an area of improvement. Skillful management of market is also necessary as there was too much price volatility in the market. There is too much fluctuation in income in the sector. This makes the sector become unattractive and may cause the agriculture industry vanish (Ciolos, 7July 2010). “The challenge of diversity”: Constant addition of new countries in the EU has made it more diverse. It has become challenge to support every farm efficiently (Ciolos, 7July 2010). The last challenge Mr. Ciolos had mentioned is: “The challenge of simplicity”: He thinks ‘to be strong the CAP needs to be simple and understandable’ (Ciolos, 7July 2010). Is Reform of CAP Necessary? What People Think: In 2010, Ciolos requested citizens and organizations to express their views on the future of CAP. It was conducted in a form of debate. Thousands of opinions came up. Those opinions were put together in a synthesis report. The report titled “The Common Agriculture Policy after 2013: Your ideas matter” contains some issues describing why reform of CAP is necessary. Research institutes and think tanks have given their reasons why reform of CAP is necessary after 2013. The summery of the main reasons the gave are: ‘Environmental sustainability and other public goods’: The systems that provide public goods should receive the CAP payments. This might result in changes in allocation criteria of member states. The eligibility criteria of the aid might have to be changed. Many think tanks believe that the environmental record of CAP is not up to the mark. Amount spent on ‘agri-environmental payments’ is small. They also accuse CAP of subsidizing harmful farming methods. Practices like drainage of wetland, faulty irrigation might be being subsidized. Some have shown the concern on sustainability of ground and soil in future as a result of climate change (Agriculture and Rural Development 19July 2010). ‘Economic Efficiency’: Some focused on broader economic issues. They have the opinion that CAP wastes funds. Those resources could be used for other important purposes. They think CAP hampers decision-making on EU budget-financing. Instruments should be more focused. Many think CAP needs transparency and more simplification (Agriculture and Rural Development 19July 2010). ‘Market Management’: Some have given emphasis on managing agricultural market. They said that ‘free market is not able to guarantee enough food for all worldwide’ (Agriculture and Rural Development 19July 2010). ‘Global Competition’: some of the institutions and think tanks feel EU farmers are subjected to too many rules and regulations of environment, food safety etc. This puts the EU farmers at position of disadvantage making them unfit for competition. Therefore they lose to the farmers of the developing nations. They advocated for boarder protection. Some gave emphasis on fair-trade condition in international market (Agriculture and Rural Development 19July 2010). ‘Impact of CAP on the developing world’: Some research institutes and think tanks consider CAP affects world’s ‘fight against poverty’. CAP also endangers global ‘food security’. The subsidies provided by CAP on exports and tariffs imposed on imports by the EU lower price of food products world wide. This affects farmers in developing countries where such subsidies are not provided. As a result wages for agricultural labour in poor countries fall. They suggest EU should spend money on research and development for the betterment of agriculture globally (Agriculture and Rural Development 19July 2010). Figure shows EU imports more from the developing nations: (figures in million Euros) Source: (European Commission 2012) ‘Equity’: They have advocated for more priority on small and medium sized farmers (Agriculture and Rural Development 19July 2010). The reasons for CAP reform discussed above were given by the institutions and think tanks. The reasons given by the stakeholders i.e. farmers and those who are connected to agriculture and food processing industry, are given below: ‘Overall’: There is more instability in raw material prices. The global demand is also on rise and global market being more open every day. Issues like environment, health standard etc. weigh them down. Farmers are also growing concerned about climate changes (Agriculture and Rural Development 19July 2010). ‘Coherence among EU policies’: Farmers believe that a lack of coherence between policies involving ‘supply, food safety, new technologies, trade, development, environment, training for farmers, animal welfare, consumer and social policies’, is affecting them (Agriculture and Rural Development 19July 2010). ‘Imbalance in support payment between member states’: Many stakeholders feel that there is a lack of balance in distribution of aid money among the farmers of same country and the farmers of different countries (Agriculture and Rural Development 19July 2010). ‘Working Condition/ modernization’: Some of the NGOs call CAP contradicting. They argue that ‘on the one hand the CAP perpetuates a traditional form of agriculture, which is inefficient and whose long-term future is ultimately threatened, while on the other hand today’s CAP favours over-dependence on the market leading to the abandonment/absorption of smaller, less-efficient farms’ (Agriculture and Rural Development 19July 2010). ‘Reliance on the Market’: On the CAP policies on agricultural market the opinions of the stake holders are split in to three groups. One group think CAP should regulate market, as it does usually, by paying subsidies and income supports. A few among these even want a return of old policy like price support. The second group believes that market should be free from regulations and farmers should deal in market prices. The third group say, to quote from the summery report ‘public money must not be used to support cheap, low quality products, but only to reward farmers for the provision of public goods’(Agriculture and Rural Development 19July 2010). ‘Functioning of food chain’: The stakeholders think the working of the EU supply chain of food products should be amended. There exists some amount disparity of power at different points if the supply chain (Agriculture and Rural Development 19July 2010). The figure below shows how only a few whole sellers, retailers and manufacturers have the bargaining power. Number of members in European food chain: Source: (European Commission 2012) ‘The CAP is being inadequately implemented’: Many stakeholders believe that the implementation of CAP rules is not adequate. They want better monitoring and control (Agriculture and Rural Development 19July 2010). This is what the stakeholders of CAP had to say. Now it is the time to have a look on what the general public says. Among the general public many people are not sure about the successes of previous reforms. Many others are content with the present system of CAP. However, there are people who want reform ‘through evolution not revolution’. The reasons for a CAP reform they give are: make food security stronger, an income guarantee for farmers, weakening of influence of multinationals, control of speculators’ activities. People also had shown some concern for developing economies. They think EU dumps surplus in those countries and disturb their economy. They are also concerned about the issues like people leaving rural habitations. They also want CAP to give more importance to smaller or family farmers, organic farming etc. They also think income of farmer should improve (Agriculture and Rural Development 19July 2010). Average income in farming compared to average income in all the sectors taken together: Source: Source: (European Commission 2012) The reform of CAP at the Implementation level, the general public thinks, should be for: simpler administration and less paperwork. They also want that CAP should give better value for money. The current system of CAP payments, they feel, is not focused enough on specific outcomes (Agriculture and Rural Development 19July 2010). From the above discussion it is clear that a reform of CAP will be good for the agriculture and rural development of EU. What reform should be made to the CAP should be the result of discussions on challenges faced by present form of CAP. Before that the main aims of the reform should be determined. Aims of the CAP Reform: Based on the assessment of the challenges faced by the present CAP; and considering the opinions of different parties in the EU and recommendations made by them the main aims of the future CAP should be as follows: ‘Better targeted income support’: The new CAP will be better targeted. It will be more reasonable and simpler. Only active farmers will enjoy income support (Press Release 12 Oct, 2011). More responsive and more suitable crisis management: More effective ‘safety nets’ for vulnerable farmers by designing insurance and mutual funds for farmers at risk (Press Release 12 Oct, 2011). ‘Green payment for preserving long-term productivity and ecosystem’: A large portion of direct payment must be used for the better utilization of natural resources. This measure will ensure better sustainability of farming. Measures like crop variation, protection of natural reservoirs and countryside (Press Release 12 Oct, 2011). More spending on Research and development: Much higher budget allocations must be made for research and development in the field of agriculture. More interaction between farmers and scientists; and readier transfer of new innovation from lab to field must be the aim (Press Release 12 Oct, 2011). Better supply chain: There should be better monitoring of the value addition process in the agricultural industry. The supply chain should be more efficient and producer-consumer friendly. Aids should be given to the producer organizations. A direct communication between the producers and the consumers must be promoted (Press Release 12 Oct, 2011). ‘Encouraging agri-environmental initiatives’: Each territory should be individually treated. And environmental programs should be supported at national, territorial and local level (Press Release 12 Oct, 2011). Attracting young people to farming: About 66% of the EU farmers are older than 55 years of age. According to BBC News, the average age of farmers in United Kingdom is 57 years (BBC News 27April, 2010). EU must provide some incentive to young farmers. Young people starting farming should be given extra benefits during the first few years of their farming (Press Release 12 Oct, 2011). More employment and private enterprises in rural areas: Farming must generate more jobs in the rural areas. Small entrepreneurs must get extra help for starting up and establishing their business (Press Release 12 Oct, 2011). Dealing with fragile areas: Environmentally fragile areas must be treated in a special manner. Additional care and aids must be given in order to preserve fertility of the soil of those areas (Press Release 12 Oct, 2011). System that is simple and more efficient: The new CAP should be simpler, easier to understand and administer, and more efficient. Administering CAP to small farmers should be much simpler (Press Release 12 Oct, 2011). Recommended Features of the Reformed CAP: Now, that the aims of the new CAP have been determined; the task now is to design it. The new CAP must be designed keeping in mind these aims. The new CAP should enable the fulfillment of the aims set in this discussion. The features of the new CAP could be as follows. Single mode of Single Payment: The present system of payment has variations. The system is different for different member-states or areas. With in few years all member-states must adopt a uniform norm. The norm should be payment per hectare for all. The department of Agriculture and rural Development has also recommended similar rule for the ‘CAP after 2013’ (European Commission, 19Oct, 2011). Upper limit of Support: An upper limit of the sum received by an entity as CAP aid must be fixed. This will make CAP fairer and more economic. However provisions should be made for salaries of employees; otherwise, salaries of employees could be affected. Similar measure is also recommended by the Commission. They proposed to fix the cap on aid amount at 300 000 Euros per year (European Commission, 12Oct, 2011). Cross Compliance: The cross compliance must be much simpler. Of course there will be deductions for not meeting the environment standards, animal welfare standards etc; only the administration and calculation will be simpler. The department of Agriculture and Rural Development also made recommendation on this line (European Commission, 19Oct, 2011). More Amount Spent on Environment Protection: More amounts will be spent on the farmers who take care of environment. More amounts should be given to the farmers for crop diversification, organic farming etc. The Commission has also sent proposals in this respect (European Commission, 12Oct, 2011). Encourage Young Farmers: Extra amounts, in addition to the usual aid, should be given to the young farmers coming in to agriculture. The commission has also a similar plan for the new entries aged under 40 (European Commission, 19Oct, 2011). Taking Care of Small Farmers: Small farmers should get a minimum guaranteed amount. Sometimes farmers with smaller piece of land get a very low amount of aid insufficient for their survival. This discourages the small farmers from farming and makes them keep their land idle. The Commission proposes for a fixed amount of 500 to1000 Euros for small farmers (European Commission, 19Oct, 2011). No Farming No Payment: Rule should be strict on farmers who leave their lands uncultivated. Supports to non-agricultural activities must be minized so that inactive farmers get very less amount. The commission has also taken a stand on this line (European Commission, 19Oct, 2011). Conclusion: The Common Agriculture policy (CAP) is viewed by the policy makers of the European Union as a ‘partnership between the farmers and Europe’ (European Commission 2012). Though it has been criticized by many on different grounds, the EU considers it as a tool to protect its farmers and the countryside. Since its introduction it has been undergone different reforms. The latest reform is due after 2013. Many want a reform of present CAP and may do not. However nobody wants any drastic reform. People from different quarters of Europe have expressed their views on reform of CAP. They have pointed out where reforms are necessary. They want no major change, but a fine tune of existing policies. The present CAP faces challenges in fields like food-security, environment and climate change, territorial inequity, efficiency, market management, supply chain management, equality, concern for developing nations etc. Based on the opinions given by people, institutions, think tanks, stakeholders and European Commission officials some recommendation on the reform could be made. Reform should be introduced in the areas like mode of payment, cap on payment amount, new initiative on environment, encouraging young and small farmers etc. Hopefully this reform will better benefit the European farmers and the European countryside. References: 1. Agriculture (8 Feb 2013). Not just farming. European Union. Available at < http://europa.eu/pol/agr/> (accessed on May 10, 2013) 2. Agriculture and Rural Development (6 Nov 2012). The Common Agriculture Policy (CAP) and Agriculture in Europe- Frequently Asked questions. European Commission. Available at < http://ec.europa.eu/agriculture/faq/index_en.htm#2 > (accessed on May 10, 2013) 3. European Commission (2012) The Common Agricultural Policy A partnership between Europe and Farmers. Publications Office of the European Union. Luxembourg. 4. European Anti-Fraud Office (17Jan 2013). Fraud in Figures. European Commission : OLAF. Available at < http://ec.europa.eu/anti_fraud/investigations/fraud-in-figures/index_en.htm > (accessed on May 10, 2013) 5. EU Facts (22Jan 2013). Common Agriculture Policy. CIVITAS. Available at < http://www.civitas.org.uk/eufacts/FSPOL/AG3.htm > (accessed on May 10, 2013) 6. European Commission (18Nov 2010).Communication from the Commission to the Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: The CAP towards 2020. European Commission. Available at < http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0672:FIN:en:PDF > (accessed on May 10, 2013) 7. Ciolos, D. (22July 2010) Speech Titled I want a CAP that is strong, efficient and well-balanced. Brussels. Europa: Press release RAPID. Available at < http://europa.eu/rapid/press-release_SPEECH-10-400_en.htm? locale=en#PR _metaPressRelease_bottom > (accessed on May 10, 2013) 8. Agriculture and Rural Development (19July 2010). 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European omission. Available at < http://ec.europa.eu/agriculture/cap-post-2013/legal-proposals/com625/625_en.pdf > (accessed on May 10, 2013) 13. European Commission, (12Oct, 2011). Proposal for a COUNCIL REGULATION determining measures on fixing certain aids and refunds related to the common organisation of the markets in agricultural products. European Commission. Available at < http://ec.europa.eu/agriculture/cap-post-2013/legal-proposals/com629/629_en.pdf > (accessed on May 10, 2013) 14. European Commission, (19Oct, 2011). Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the financing, management and monitoring of the common agricultural policy. European Commission. Available at < http://ec.europa.eu/agriculture/cap-post-2013/legal-proposals/com628/628_en.pdf > (accessed on May 10, 2013) 15. European Commission, (12Oct, 2011). Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Council Regulation (EC) No 1234/2007 as regards the regime of the single payment scheme and support to vine-growers. European Commission. Available at < http://ec.europa.eu/agriculture/cap-post-2013/legal-proposals/com631/631_en.pdf > (accessed on May 10, 2013) 16. European Commission, (19Oct, 2011). Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on support for rural development by the European Agricultural Fund for Rural Development (EAFRD). European Commission. Available at < http://ec.europa.eu/ agriculture/cap-post-2013/legal-proposals/com627/627_en.pdf > (accessed on May 10, 2013) Read More