common policy, common budget? péter halmai professor of economics szent isván university budapest,...
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Common policy, common budget?
Péter HalmaiProfessor of EconomicsSzent Isván University
Budapest, 30.05.2008
The future of the EU budget
• CAP caught in cross-hairs? – After 2013 the situation of the CAP is open – facing the greatest challenge of CAP-history
• Widespread approaches – CAP represents the past, it makes EU-
adjustment to challenges of the globalization difficult
– Financing of the CAP doesn’t result in EU-wide value added
– Present sources of the CAP enable changes in budget expenses (other financial goals)
CAP: moving target
• Changing priorities– Direct payments instead of market measures– Strengthening competitiveness – Agri-environment – cross compliance– Second pillar: integrated rural development – Health Check– Support is paid by taxpayers not by
consumers
CAP expenditure and CAP reform path
0
10
20
30
40
50
60
70
19
80
19
81
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82
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83
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84
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85
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20
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20
01
20
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20
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20
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20
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20
07
0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
Export subsidies Market supportDirect aids Decoupled paymentsRural development % of EU GDP
billion €
EU-12 EU-15 EU-25 EU-27EU-10
% GDP
Criticism on the CAP
• Partial decoupling• Direct payments are based on historical
payments• Capitalization of direct payments in land prices
and land lease fees – distortion of input markets• Restricted role of rural development • Significant disparities have evolved making the
new member states handicapped
Conclusion: despite remarkable changes present system of the CAP is still not sustainable
Possible options
• Corrections
• Radical reform
• Re-nationalization
• Total liberalization
European Public Goods and the CAP
• European agricultural model, multifunctional agriculture– Joint output– Certain non-product outputs: externality, public goods
(e.g. land management)– Purely on the basis of market mechanism an
adequate production of these is not ensured– Stricter rules – agri-environment, animal health, food
security – than that of competitors cause disadvantaged competition
– It is difficult to determine the economic costs of rural externalities
To what extent community financing can be justified?
• Fiscal federalism theory – centralized financing (at EU level) is justified: significant, positive and negative cross-border externalities and spill-over effects
• Multifunctional agriculture
European Public Goods
• The re-nationalization would jeopardize the functioning of internal market, economic-social cohesion
Vision: Common Agricultural and Rural Policy
• Change is needed: a radical deepening of CAP-reform
• Sustainability (economic, environmental, social) and a Common Agricultural and Rural Policy with environmental values and competitiveness in the focus should be emphasized
Conclusions
• The rural economy provides European public goods, too
• The reformed (new?) policy might promote more efficiently the production of European public goods
• Free lunch is not possible
Certain public goods provided by agriculture
Public goods Spill-over effects
Environment friendly agricultural production practices
Protection of natural resourcesStable ecosystemBiological diversityProtection of valuable natural areas Carbon sequestration
Local, regional, EuropeanRegional, EuropeanLocal, regional, EuropeanLocal, regional, EuropeanEuropean
Ethical agricultural production Food safetyAnimal welfare
Local, regional, EuropeanLocal, regional, European
Socially sustainable agriculture Buffer function on the labour marketCultural diversity
Local, regional, EuropeanLocal, regional, European
Land management Stable ecosystemBiological diversityCarbon sequestration
Regional, EuropeanLocal, regional, EuropeanEuropean
Preventing deforestation Forest biodiversityStable ecosystemWildlife Reduction of greenhouse gasCarbon sequestration
Local, regional, EuropeanRegional, EuropeanLocal, regional, EuropeanLocal, regional, EuropeanEuropean
Combating desertification and drought Carbon sequestration Watershed protection Biodiversity conservation in drylands
European Regional, EuropeanLocal, regional, European,
Sustainable mountain development Stable ecosystemHydrological stabilityCarbon sequestration
Regional, EuropeanLocal, regional, EuropeanEuropean
Structural change in Common Agricultural and Rural
Development Policy At present: Common Agricultural Policy
Pillar 1: market policy
VISION: Common Rural Policy (?)
Pillar 1: Incentives for provision of rural public goods
Direct payment
Other internal market measures
External market measures
Pillar 1/A
Flat-rate subsidies based on public goods
Pillar 1/B
Complementary subsidies on regional base (targeted support for the provision of public goods)
SPS
Coupled with production
Intervention Support for private storagePromotional/ marketing supportSupport for structural changeWithdrawal support
Export refunds Promotional/ marketing support
Pillar 2: Rural development Pillar 2: Strengthening the viability of
rural economy and society
Pillar 1
Competitiveness
Pillar 2
Environment management
Pillar 3
Diversification and improvement of life
quality
2/A: Improvement of competitiveness of agriculture, forestry, aquaculture
Structural adjustment Risk and crisis management
2/B: Economic/ Social Strengthening of rural communities