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European Union Economics and International Institutions > Week four - common agricultural policy > Flashcards

Week four - common agricultural policy Flashcards

1
Q

why does the EU have a common agricultural policy

A
  • food security
  • guarantees income stability for farmers
  • preserves landscape
  • environmental objectives
  • promotion of growth
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2
Q

what are the three laws that condemn agriculture

A
  • kings law (prices)
  • engels law (income)
  • turgots law (yields)
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3
Q

what some characteristics that show income instability/fall in revenue in the agriculture sector

A

short run:
- low price elasticity of demand (kings law)
- supply volatility
- output increases lead to lower prices and revenue
long run:
- low income elasticity of demand (engel): % of income allocated for food purchases decreases as income rises
- increased returns due to technological advances
- inability to set prices (scarce market power)

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4
Q

what are the structural constraints of the agriculture sector

A
  • law of diminishing returns in agriculture (land)
  • reduced factor mobility (land, labour)
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5
Q

what are some characteristics that show income instability/fall in revenue in the agriculture sector

A

short run:
- low price elasticity of demand (kings law)
- supply volatility
- output increases lead to lower prices and revenue
long run:
- low income elasticity of demand (engel): % of income allocated for food purchases decreases as income rises
- increased returns due to technological advances
- inability to set prices (scarce market power)

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6
Q

what reasons are regulations based on today

A
  • stablisaing revenues
  • strategic self-sufficiency
  • risk of disappearance
  • environmental importance
  • avoiding depopulation
  • multifunctionality of agriculture (healthy food, environment, socio-cultural factors)
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7
Q

what did the signing of the treaty of Rome mean

A

the CAP replaced national agricultural policies of member states (support and stabilisation of agricultural incomes, special trade protection)

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8
Q

what are the aims of the CAP in the treaty of rome

A
  • encourage productivity in the food chain
  • fair standard of living for farmers
  • market stabilisation
  • ensuring availability of food supplies
  • supplying food at reasonable prices
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9
Q

how were incentives to produce provided to achieve the goals of the CAP

A
  • a system of support prices to farmers
  • border protection and export support
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10
Q

what three principles govern the creation of Common Market Organisations (CMO)

A
  • unity of market (free movement of goods)
  • community preference (community (EEC) goods much be sold before imports access the EU market
  • financial solidarity (joint financing of expenses)
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11
Q

what is the European Agricultural Guidance and Guarantee Fund (EAGGF) and why was it established

A

to finance CAP operations, 90% is a guarantee section for income support and 10% is a guidance section for structural measures/rural development

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12
Q

how does the EAGGF guarantee farmers income

A

by:
- establishing common agricultural prices
- organising border protection

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13
Q

how do they decide what to price the agricultural goods

A
  • target price: price level desirable for the domestic market (higher than world price)
  • they serve as reference for other prices
  • threshold price = target price - internal commercial distribution costs
  • minimum entry price for imports
  • determines agricultural levies and compensatory taxes
  • variable levy = threshold price - lowest world price (calculated daily)
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14
Q

what is the intervention price

A

the price below which domestic crops cannot drop (minimum price guaranteed to producers whatever happens)

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15
Q

graph to show traditional CAP

A

slide 14, lecture 4

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16
Q

what forces agencies to buy or subsidise exports

A

the intervention price

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17
Q

what border protection exists in terms of the CAP

A

1) common external tariff
2) for products that have a threshold price
- variable levies
- compensatory taxes
3) for products where supply exceeds demand (surpluses)
- either withdrawal from the market: intervention purchases combined with private storage aid
- export refunds (subsidies)

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18
Q

what are the problems of rural areas (today known as the second pillar)

A
  • declining and ageing population
  • low labour productivity
  • lower utility allowance + accessibility issues
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19
Q

objectives of the second pillar

A
  • modernisation of farms
  • facilitate early retirement
  • support for farmers in disadvantages areas
  • reforestation and environmental protection
20
Q

how is the second pillar financed

A

EAGGF funds and member states recipients

21
Q

causes of reforms

A

1) border protection led to an increasing gap between supply and demand
2) huge financial and economic costs
(to the benefit of big producers and at the expense of consumers and taxpayers)
3) financial insufficiency in the EU budget
4) conflicts with other countries at the GATT (WTO)

22
Q

what was the CAP reform in the 80s

A
  • production quota systems in dairy products since 1984
  • introduction of guarantee thresholds from 1987 onwards
  • maximum ceiling for CAP budget (cannot increase more than 74% of GNP growth
23
Q

what was the CAP reform in the 90s

A

Macsherry reform
- limit rising production, adjusting to a more free agricultural market
- shifting from product to market support
- decrease of intervention prices to bring EU prices closer to world prices
- PAC financial costs are transformed from consumers to taxpayers
- agro-environmental programmes
- afforestation
- early retirement
- diverification

24
Q

what were the aims of the reforms in the 90s

A
  • improve the competitiveness of EU agriculture
  • stabilise agricultural markets
  • diversify production
  • protect the environment
  • stabilise EU budget expenditure
25
Q

how were the decrease of intervention prices in the 90s compensated

A

they were compensated by direct payments to farmers to compensate potential loss of income

26
Q

what was the first CAP reform in the 2000s

A

Agenda 2000
- reducing price support (further decrease in intervention prices)
- compliance with environmental requirements
- modification of employment and income thresholds

27
Q

what did agenda 2000 split the CAP into

A

2 pillars
1) market support and income support
2) new rural development policy

28
Q

what were the aims of agenda 2000

A
  • increased competitiveness
  • food safety and quality
  • stabilise agricultural incomes
  • stabilise agricultural spending in real terms
  • integration of environmental concerns into agricultural policy
  • diversification
  • simplify legislation
  • strengthening the EU’s position in the WTO negotiations
29
Q

what was the second reform in the 2000s

A

Reform 2003
- decoupling of income support payments from production (single payment scheme) –> subject to cross compliance
- EAGGF was replaced by the EAGF (european agricultural guarantee fund) and EAFRD (european agricultural fund for rural development)

30
Q

what was the aim of reform 2003

A
  • enhancing the competitiveness of the farming sector
  • strengthening rural development
31
Q

what were the aims of the single payment scheme

A
  • farmers free to produce market demand
  • promote sustainable farming
  • simplify CAP application
  • abandon price support (further reduction o intervention prices)
32
Q

what is the meaning of the 2003 cross-compliance

A

any farmer receiving any kind of direct payment is subject to cross compliance (obligations to fulfil requirements; environmental, animal/plant health, animal welfare and maintenance of land)

33
Q

what happened in 2007

A
  • stricter budgetary ceilings on pillar 1
  • pillar 2 now compulsory
34
Q

aims of todays CAP policy

A
  • provide farmers with reasonable standards of living
  • provide consumer with quality food at fair prices
  • preserve our rural heritage
35
Q

positive effects of the CAP today

A
  • single agricultural market + trade increase
  • modernisation + increase in production and productivity
  • stabilisation + farmers incomes increase
  • guaranteed supplies + consumer protection
  • reasonable prices
  • contribution to european integration
36
Q

negative effects of the CAP today

A
  • permanent surpluses
  • distorted world markets
  • conflicts with other countries
  • costly and unequal income support
    (20% of the richest farms received 80% of expenditure)
  • environmental impact
  • fraud prone
  • ageing sector and heterogenous in size, incomes
37
Q

what reforms were made after 2013

A
  • lisbon treaty required adjustments in the CAP
  • the europe 2020 strategy was introduced
38
Q

why were further reforms needed after 2020

A
  • economic challenges
  • environmental challenges
  • territorial challenges
39
Q

what were the reform objectives post 2013

A
  • enhanced competitiveness
  • improved sustainability
  • greater effectiveness
40
Q

how did they adapt policy objectives post 2013

A

the two pillar structure was made into three blocks, direct payments + market measures (pillar one) and rural development (pillar two)

41
Q

what did direct payments replace and why

A

they replaced the single payment scheme, this was to make a more equitable system that promotes convergence between member states

42
Q

what were the compulsory schemes for all member states post 2013

A
  • basic payment scheme
  • green payment
  • young farmers scheme (to combat ageing population)
43
Q

what were the voluntary scheme for member states post 2013

A
  • couples support
  • support in natural constraint areas
  • redistributive payment
44
Q

what was the simplified scheme introduced for post 2013

A
  • for small farmers
  • exempt from greening obligations
  • payments limited to 1250 euros
  • replaces direct payment schemes the farmer may be entitled to
45
Q

what specific market measures were used post 2013

A
  • end of dairy quotas
  • public intervention systems and private storage aid revised
  • strengthened crisis management tools
46
Q

what specific rural development policies were introduced post 2013

A

six main priorities:
- knowledge transfer
- enhancing competitiveness
- promoting food chain organisation
- restoring ecosystems
- promoting resource efficiency
- promoting social inclusion

47
Q

timeline of CAP development

A

last slide of lecture 4

European Union Economics and International Institutions (5 decks)

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