The reform of the EU's Common Agricultural Policy:

drivers and challenges

ABARES – Outlook 2014 Canberra, 4-5 March 2014

Tassos Haniotis

Director, Economic Analysis, perspectives and evaluations

DG Agriculture and Rural Development

European Commission

Outline

Four basic questions of (any) reform

1. How much?

2. For whom?

3. Why?

4. How?

2

3

How much: the path of CAP expenditure 1980-2020

Source: DG Agriculture and Rural Development.

0

10

20

30

40

50

60

70

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

billion EUR (current prices)

Export refunds Other market measures Market expenditure Coupled support

Decoupled support Direct payments Rural development

EU-28 EU-10 EU-12 EU-15 EU-25 EU-27

For whom: redistribution of Direct Payments

4

Source: DG Agriculture and Rural Development.

5

Why: the main drivers of CAP reform

What sort of "insecurities" drive the current policy debate?

• Commodity price developments: volatility, co-movement and level

• Supply concerns: terms of trade, productivity, climate change

• Demand concerns: food chain "bottlenecks" in price transmission, economic crisis

The CAP reform process can be viewed as an effort to address

• Market failures, especially those linked to economic and environmental sustainability

• Policy failure in areas linked to the fairer distribution and "green" targeting of support

• ″Jointness″ in delivery of private and public goods (one as prerequisite for the other)

The CAP shifts its focus and its policy paradigm

• Retargeting of support shifts reference from farmer/beneficiary to (fixed) land

• "Greening" in all its aspects moves focus to condition support on land use

• Research, Innovation, Monitoring and Evaluation to better target land use changes

The objectives of CAP reform

6

Challenges

Environmental

Economic

Territorial

Policy objectives

Sustainable management of natural resources and climate

action

Balanced territorial development

Viable food production

Reform objectives

Improved sustainability

Enhanced competitiveness

Greater effectiveness

Fairer

Greener

Simpler

7

Annual real commodity price indexes

Source: World Bank

0

50

100

150

200

250

300

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

(2005 = 100)

Agriculture Fertilizers Energy Metals & minerals

US energy prices…

Source: World Bank.

8

0

5

10

15

20

25

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Crude oil (World Bank average)

Natural gas (US)

Coal (Australia)

( $ per mmbtu )

…and their link to world natural gas prices

Source: World Bank.

9

0

5

10

15

20

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

US

Europe

Japan (LNG)

( $ per mmbtu )

Climate change – Possible impacts on EU agriculture

10

▲ Floods risk ▲ Hotter and drier summers ▲ Sea levels ▲ Risk crop pests, diseases ▲ Crop, forage yields ▼ Animal health, welfare

▼ Water availability ▲ Risk drought, heat spells ▲ Risk soil erosion ▼ Growing season, crop yields ▼ Optimal crop areas

▼ Summer rainfall ▲ Winter storms, floods ▲ Length growing season,

yields ▲ Suitable farmland ▲ Pests, diseases risks

▲ Winter rainfall, floods ▼ Summer rainfall ▲ Risk drought, water stress ▲ Soil erosion risk ▲ Yields, range of crops

Source: DG Agriculture and Rural Development, based on EEA reports, JRC and MS academic studies.

Importance of primary sector in employment

11

How: the future CAP at a glance

12

Improved sustainability

Enhanced competitiveness

Greater effectiveness

Enhanced market orientation

Greener Direct Payments

Improved targeting

Better functioning of the food supply chain

Greener Rural Development More equitable distribution

Bridging the gap between knowledge and practice

Increased focus on research and innovation

Strategic approach to spending

How: enhanced competitiveness

13

Better functioning of the food supply chain

Enhanced market orientation

Bridging the gap between

knowledge and practice

Phasing out of quotas and other restrictions to production Streamlining market measures; enhancing the safety net Strengthening the crisis management mechanism

Reinforced framework for POs and IBOs Financial support for creation of Producer Organisations Strengthened support to short supply chains

European Partnership for Innovation in Agriculture Enhance agricultural research and knowledge transfer Enhance Farm Advisory Services

EU-28 agricultural trade structure, 2003-13

14

150000

100000

50000

0

50000

100000

150000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Commodities Intermediate Final products Other products Confidential Trade Balance

Source: COMEXT

Exports

in million Euro

Imports

15

EU competitiveness - Wheat

Source: elaboration by DG Agriculture and Rural Development

50

100

150

200

250

300

350

03/0

7/0

1

03/1

1/0

1

03/0

3/0

2

03/0

7/0

2

03/1

1/0

2

03/0

3/0

3

03/0

7/0

3

03/1

1/0

3

03/0

3/0

4

03/0

7/0

4

03/1

1/0

4

03/0

3/0

5

03/0

7/0

5

03/1

1/0

5

03/0

3/0

6

03/0

7/0

6

03/1

1/0

6

03/0

3/0

7

03/0

7/0

7

03/1

1/0

7

03/0

3/0

8

03/0

7/0

8

03/1

1/0

8

03/0

3/0

9

03/0

7/0

9

03/1

1/0

9

03/0

3/1

0

03/0

7/1

0

03/1

1/1

0

03/0

3/1

1

03/0

7/1

1

03/1

1/1

1

03/0

3/1

2

03/0

7/1

2

03/1

1/1

2

03/0

3/1

3

03/0

7/1

3

03/1

1/1

3

€/T

EU cereal support price EU Wheat Rouen US SRW Wheat

101.31

16

EU competitiveness - Beef

Source: elaboration by DG Agriculture and Rural Development

100

150

200

250

300

350

400

450

03/0

1/0

0

03/0

6/0

0

03/1

1/0

0

03/0

4/0

1

03/0

9/0

1

03/0

2/0

2

03/0

7/0

2

03/1

2/0

2

03/0

5/0

3

03/1

0/0

3

03/0

3/0

4

03/0

8/0

4

03/0

1/0

5

03/0

6/0

5

03/1

1/0

5

03/0

4/0

6

03/0

9/0

6

03/0

2/0

7

03/0

7/0

7

03/1

2/0

7

03/0

5/0

8

03/1

0/0

8

03/0

3/0

9

03/0

8/0

9

03/0

1/1

0

03/0

6/1

0

03/1

1/1

0

03/0

4/1

1

03/0

9/1

1

03/0

2/1

2

03/0

7/1

2

03/1

2/1

2

03/0

5/1

3

03/1

0/1

3

€/100kg carcass

EU Intervention Price US Omaha EU Beef A/C R3 Brazil Arroba do boi

347

324

301

156

17

EU competitiveness - Milk

Source: elaboration by DG Agriculture and Rural Development

100

150

200

250

300

350

400

450

15/0

1/0

0

15/0

6/0

0

15/1

1/0

0

15/0

4/0

1

15/0

9/0

1

15/0

2/0

2

15/0

7/0

2

15/1

2/0

2

15/0

5/0

3

15/1

0/0

3

15/0

3/0

4

15/0

8/0

4

15/0

1/0

5

15/0

6/0

5

15/1

1/0

5

15/0

4/0

6

15/0

9/0

6

15/0

2/0

7

15/0

7/0

7

15/1

2/0

7

15/0

5/0

8

15/1

0/0

8

15/0

3/0

9

15/0

8/0

9

15/0

1/1

0

15/0

6/1

0

15/1

1/1

0

15/0

4/1

1

15/0

9/1

1

15/0

2/1

2

15/0

7/1

2

15/1

2/1

2

15/0

5/1

3

€/T

EU Milk Equivalent Support Price World Milk Equivalent Price EU Milk Price

282 263

244 225

220 215

How: improved sustainability

18

Greener rural development

Greener direct payments

Increased focus on research and

innovation

Introduce mandatory "green" practices at farm level Link these practices to 30% of direct payment budget Reinforce cross-compliance

Priorities on "resource efficiency" & "eco-systems" Enhance ambition for environment/climate measures Mandatory min of 30% for environmental actions spending

European Partnership for Innovation in Agriculture Enhance agricultural research and knowledge transfer Enhance Farm Advisory Services

How: greater effectiveness

19

More equitable distribution

Improved targeting

Strategic approach to

spending

Provisions for active farmer and young farmers Green payment Specific support to regions, sectors and farm size

Convergence of payments among MS Convergence of payments among farmers Flexibility in choice of regionalisation for MS

Improved integration with other EU policies Strategic approach in rural development programming Improved monitoring and evaluation of policy

20

The new greening architecture of the CAP

Agricultural area (eligible for direct payments)

Cross compliance

Greening

Rural development

Cu

mu

lati

ve

en

vir

on

men

tal

ben

efi

ts

Regulatory (Statutory

Management Requirements and Good Agricultural

Environmental Conditions)

Mandatory with financial

support (decoupled “green”

payment per hectare)

Voluntary with compensation for cost incurred

and income forgone

Implementation mechanism

For further information

Political agreement on the CAP2020

http://ec.europa.eu/agriculture/cap-post-2013/agreement/index_en.htm

Legal proposals

http://ec.europa.eu/agriculture/cap-post-2013/legal-proposals/index_en.htm

Impact assessment

http://ec.europa.eu/agriculture/policy-perspectives/impact-assessment/cap-towards-2020/index_en.htm

21

Thank you