The Common Agricultural Policy - Essay Example

THE COMMON AGRICULTURAL POLICY. EXAMINE THE CASE FOR AN EU STRUCTURAL POLICY. ASSESS HOW EFFECTIVE STRUCTURAL POLICY HAS BEEN IN REDUCING REGIONAL DISPARITIES IN THE EU The European Union's Common Agricultural Policy is a programme of agricultural subsidy and agricultural trade policy maintained in member states. (Swinbank, 2002) The first part of this essay will give a presentation on the Common Agricultural Policy - i.e. its establishment, historical development, reform, and the criticisms and support that have been made concerning it. Funding for Agriculture is one of the central pillars recognised under Article 159 EC as constituting a means of achieving a harmonious development and economic cohesion within the Common Market of the European Union. Thus (at least) from the perspective of the Treaty on European Union, (and its predecessor Treaties) funding for agriculture should be a medium for reducing or eradicating regional disparities within the European Union. Funding for agriculture within the Union has historically been dispensed under the Common Agricultural Policy. The Common Agricultural Policy came into being in 1962 after the ratification of the Treaty of Rome in 1957 and the resultant establishment of the Common Market. The establishment of the Common Market came with Treaty requirements that guaranteed the free movement of goods (among other freedoms like the free movement of services, persons, and capital). The member states of the then European Economic Community - France, Germany, Italy, Belgium, the Netherlands, and Luxemburg - all had different agricultural policies that had some state intervention in the sector. France was however notable for its very strong state intervention in its agricultural sector and insisted on the maintenance of subsidies for the agricultural sector as a condition for the establishment of the Common Market. (BBC Q&A, 2005) Thus the issue of free trade guarantees in the Treaty of Rome and the barriers to trade in agricultural products that individual state intervention through subsidies in the agricultural sector would bring was evident. This necessitated a common subsidy programme to harmonise the subsidisation of agriculture in the Common Market. (El-Agraa, 2007) The Common Agricultural Policy thus presented a compromise through which a harmonisation of state intervention on a common basis could be maintained within the free trade guarantees of the Treaty of Rome and for the functioning of the Common Market. The establishment of the Common Agricultural Policy had the following objectives - to increase productivity to ensure fair living standards for the agricultural community, to stabilise markets, to ensure availability of food, and to provide food at reasonable prices. (Article 39 of the Treaty of Rome) In practice, the Common Agricultural Policy is a programme of financial subsidy paid to farmers and a trade policy that sets tariff and quota restrictions on the import of agricultural products from outside the European Union's Common Market. (El-Agraa, 2007) The financial subsidy under Common Agricultural Policy offers a guaranteed minimum price payable to producers of agricultural products, though the actual implementation and maintenance of the subsidy programme varies from different member states in the European Union. The Common Agricultural Policy has undergone changes over time to meet with policy, structural and domestic and international demands for reform among others. Currently, the 'decoupling' scheme is one of the central reform tools being used by the European Union detach production subsidies. (Jeffery, 2003) Payment of subsidies is no longer tied to the volume of production of agricultural produce. The single payment scheme is one of the policies that have been adopted to 'decouple' subsidies from production. (El-Agraa, 2007; Anderson and Josling, 2007) The maintenance of subsidies with production had resulted in a system where farmers produced for subsidies and not necessarily for the market. This resulted in an over production of agricultural products. The concomitant effect of this over production was a dumping of heavily subsidised agricultural goods on the world market, resulting in serious distortion and depressing of prices for agricultural products. (Anderson and Josling, 2007) Dumped agricultural products on the markets of developing countries also had a negative impact on their domestic agricultural sectors. Local farmers in developing countries could not compete with the heavily subsidised imported products from the European Union. This resulted in international pressure and criticism for a reformation of the European Union's Common Agricultural Policy, especially during multilateral trade negotiations under the World Trade Organisation. (van den Bosche, 2005) Another criticism of the Common Agricultural Policy is that it is too costly and yet benefits relatively few people. Within the European Union for instance, 10 million people work in the agricultural sector and this constitutes only 5 per cent of its population. The agricultural sector also generates only 1.6 per cent of the European Union's GDP though in 2005, the sector received 44 percent of its budget. The significance of agriculture in the national economies of member states of the Union also differ from state to state. For instance, whereas less than 2 per cent of the population in UK and Belgium work in the field of agriculture, 18 per cent of the population of Poland work in agriculture. Also, in Sweden, agriculture accounts for only 0.6 of GDP, however, in Greece, agriculture accounts for more than 5 per cent of GDP. (BBC Q&A 2005) Furthermore, the agricultural sectors that receive the biggest share of financial support (i.e. cereals, beef/veal, and dairy) are still reflective of products from the six founding members of the European Union - France, Germany, Italy, Belgium, the Netherlands, and Luxemburg. Thus though regional development and economic cohesion are core objectives underlying the maintenance of agricultural subsidies, the products that receive the most support do not necessarily reflect the ethos of bridging the gaps is the levels of regional development. It is more of a historical relic than a structural policy aimed at reducing regional disparities within the European Union. In spite of the above stated anomaly in the Common Agricultural Policy, for new entrants into the EU like Poland, where the economy and a sizeable proportion of the population depend on agriculture, the subsidy support under the Common Agricultural Policy would be very beneficial to the sustenance of rural economies. It has also been argued that without the subsidy support, most farmers would not be able to maintain a profitable business and the European Union would have to depend on food produce from other parts of the world. Dependence on food produce from outside sources has serious implications for domestic food security. The Common Agricultural Policy has thus been "regarded by some as one of the EU's most successful policies, and by others as a scandalous waste of money". (BBC Q&A, 2005, http://news.bbc.co.uk/2/hi/europe/4407792.stm) Despite succumbing to criticism within the European Union and to international pressure for the reformation of the Common Agricultural Policy, it still remains a pivotal and central programme in the European Union's development policy. Before 1992 when major policy and structural changes were made to the Common Agricultural Policy, it accounted for 61 per cent of the European Union's budget. (CAP Reform, n.d.) Though by 2005 budgetary support for the Common Agricultural Policy had been reduced significantly, it still represented 44 per cent of the European Union's budget (i.e. 43 billion euros) The reform of the Common Agricultural Policy will also witness a move from more spending on agricultural subsidies to a greater spending under the European Union's Regional Policy. By 2013, it is envisaged that the spending under the Common Agricultural Policy would be reduced to 32 per cent, while spending under the Regional Policy will be increased to 36 per cent (i.e. more than twice its figure of 17 per cent in 1988). The emphasis on more spending on Regional Policy reflects the direction of the European Union in its bid to harmonise regional disparities within the Union especially with the advent of its expansion into eastern and central Europe. As stated above, the greater share of funding from the Common Agricultural Policy have directed at support for products that reflect the agricultural economies of the six founding members of the European Union. Thus though the European Union has expanded, the ethos of expansion has not kept pace with the use of the Common Agricultural Policy as a tool for harmonising regional development. Considering the fact that more than half of European Union citizens reside in rural areas where agriculture is more likely to be one of the main economic activities, the lack of harmonisation and balance in the dispensing of spending under the Common Agricultural Policy to reflect more of regional development is a grievous failing. The EC Treaty for instance made the issue of regional development and cohesion an important aspect of the integration process. Article 158 EC states that: "In order to promote its overall harmonious development, the Community shall develop and pursue its actions leading to the strengthening of its economic and social cohesion. In particular, the Community shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions or islands, including rural areas." In pursuance of the Treaty objective of achieving an "overall harmonious development" within the European Union, different 'structural funds' have been established targeted at specific areas of concern. The European Agricultural Guidance and Guarantee Fund (EAGGF) was for instance established to finance the Common Agricultural Policy, while the European Regional Development Fund (ERDF) was set up to assist regions lagging behind in their development. (Europa, n.d.) Also, the Cohesion Fund which has been in existence since 1993 is used to support transport and environment in member states with a GDP per capita of less than 90 per cent of the average in the European Union. Greece, Ireland and Portugal are notable beneficiaries of the Cohesion Fund. (Europa, n.d.) The Structural Policy of the EU has recorded some significant successes that are worthy of note. Prior to its expansion eastward, the four poorest countries within the European Union - Ireland, Portugal, Spain, and Greece - have recorded improvements in their economies, the most notable being Ireland. The per capita GDP of Ireland for instance increased from 64 per cent of the Community average in 1983 to almost 90 per cent in 1995. By 2001, its per capita GDP of the Community average had shot up to 118 per cent. Unsurprisingly, Ireland (and Greece) were the biggest per capita beneficiaries of the Common Agricultural Policy in 2004. (BBC Q&A, 2005) Agricultural subsidies received by Ireland and Greece in 2004, was 1.5 per cent of their gross national income, whereas the average within the Union was 0.5 per cent. Overall it can be argued that the Common Agricultural Policy has not had a significant impact on reducing regional disparities in development within the European Union. The shift in emphasis from agricultural subsidies to regional policy is a testament to the failure of the Common Agricultural Policy in achieving regional balance in development. While it cannot be denied that countries like Ireland and Greece whose economies were comparatively poor have received a boost from funding from the Common Agricultural Policy, the colossal cost of the programme in comparison to the minuteness of the agricultural sector, both in terms of its contribution to the GDP of the European Union and the number of EU citizens engaged in that sector, makes it unjustifiable. A more diversified approach to regional development that is not only restricted to agriculture will better serve the harmonisation and economic cohesion objectives of the EU. References and Bibligraphy: Anderson, K. (ed.) (2008). Distortions to Agricultural Incentives: A Global Perspective, London: Palgrave Anderson, K. and Josling, T. (2007). 'The EU's Common Agricultural Policy at Fifty: An International Perspective' Policy Insight No. 13, Center for Economic Policy Research BBC (December 2 2005). 'Q&A: Common Agricultural Policy', http://news.bbc.co.uk/2/hi/europe/4407792.stm (accessed on 30/04/08) El-Agraa A. M.(ed)(2007), The European Union: Economics and Policies, Cambridge University Press, 8th edition Europa (n.d.). 'Structural Policy Reform', http://europa.eu/scadplus/leg/en/lvb/l60013.htm (accessed on 30/04/08) Goodwin, B.K. and A.K. Mishra (2006), 'Are Decoupled Farm Payments Really Decoupled An Empirical Evaluation', American Journal of Agricultural Economics, 88(1): 73-88, Jeffery, S. (2003) 'The EU common Agricultural Policy', The Guardian June 26 2003 Swinbank, A. (2002). 'The Common Agricultural Policy' in J Gower (ed) The European Union Handbook, London: Fitzroy Dearborn Van den Bossche, P., (2005) The Law and Policy of the World Trade Organisation, Cambridge University Press 2003 Subsidy Reforms, http://europa.eu.int/comm/agriculture/capreform/index_en.htm Read More