Reformation in the common agricultural policy of European union

INTRODUCTION:

The European Community treats Agriculture as one of the main Community Policy. However, the Treaty doesn’t give any authentic definition of ‘Agriculture’. It is having a Common Agricultural Policy in which European Union farmers are getting subsidies. On the contrary, agricultural products defined in the Treaty are stock farming, products of soil and fisheries products of first stage. The Common Agricultural Policy commitment to guarantee prices makes it economically worthwhile to use all available land, with the aid of chemicals, to grow more crops than are demanded by the consumers and the European Union cannot use all of its agricultural products, so it sells them at a very cheap rate to the third nation.

The objective of the Common Agricultural Policy are:

1. To increase agricultural productivity by promoting technical progress and by ensuring them the rational development of agricultural production.
2. To ensure a fair standard of living for the agricultural community, particularly by increasing the individual earning of the farmers.
3. To assure the availability of supplies.
4. To ensure that the supplies reach consumers at reasonable prices.

OVER PRODUCTION:

The subsidies given by the Common Agriculture Policy to the farmers is causing over production. The European Union cannot use all of its agricultural products, so it sells them on a cheap rate to the third country. This undercuts the local farmers, who cannot compete with the heavily-subsidized imports, and so distorts the market (though the EU is not alone in this, as the US also dumps subsidized agricultural products on the developing markets).

The Common Agriculture Policy is committed for the subsidies to use all its agriculture land which not only leads to overproduction but, in fact, the farmers use chemicals to grow more crops than the demand of the consumers in the society. Excessive chemicals are found in samples of lettuce, tomatoes, apples, peaches. Health Authorities have warned that the residues resulting from excessive pesticide use may pose a public health risk, but also insist that it would require daily exposure to the chemicals to have any significant health impact. Moreover, boycotting local produce will not help and severely penalise those farmers who do their utmost to abide by the regulations in very difficult circumstances. I believe that it would be much more effective if the Authorities were to carry out continuous educational and awareness campaigns. Regular and sporadic inspections and monitoring should improve the current situation.

The Common Agriculture Policy is somehow biased as 70% of its funds are going to only 20% of Europe's farms - predominantly the largest - and leaves nearly three- quarters of EU farmers surviving on less than £5,000 a year. Small farmers account for about 40% of EU farms, but receive only 8% of available subsidies from Brussels.

MEASURES TO RESTRICT PRODUCTION:

For some commodities like milk, sugar, wine and crops has positive incentive on production of higher support prices and direct aids have been limited by the simultaneous use of supply control measures. In the case of milk and sugar, the production response to higher prices is limited by Production Quotas. In the case of arable crops, the production response was reduced by a land, set-aside requirement implemented in 1994 and only finally removed in the context of high World Grain Prices in the 2008 Health Check. In the case of beef and sheep, the coupled premiums were limited to a fixed number of head by the Member States and at farm level. In the case of vineyards, a system of planting right restrictions has been in place since 1976. This introduced a ban on new vineyard plantings in order to limit the production of table wines and prevent structural surpluses, with limited exceptions. The extent of the supply-limiting effect of milk and sugar quotas and vine planting rights could, in principle, be determined by the size of the quota rents these restrictions engendered. In the case of milk and planting rights, rents could be revealed through market trades in quota rights and planting rights, respectively, though these markets tended to be heavily regulated so the market prices probably underestimated the true size of the rents. In any case these rents varied over time depending upon the producers’ marginal costs and the expected return from product sales.

HOW EFFECTIVE WERE THESE MEASURES IN LIMITING THE SUPPLY?

The impact of the study for the Commission in 2008 on the effects of eliminating the milk quota projected that it would lead to an increase in EU milk production of 5.0% and a 10.3% decrease in the farm milk prices (from the higher level it reaches under the baseline scenario). Earlier studies had suggested a production increase of 3% and a price decline of 22% (Lips and Rieder 2005) and a production increase of 4% and a price decrease of 7%. The Health Check Reform agreed on a gradual expansion of milk quotas in the years leading up to the abolition in 2015. Nonetheless, because of the record high milk prices in the preceding year (2014), EU milk production surged in the first quarter of 2016 compared to the first quarter of 2015 (the last three months of the quota regime) by 7.2%. The sugar quota regime remains in place until 2017. However, an impact study of its abolition also suggested that quota abolition will lead to an increase in EU sugar production and falling imports.

Since the 1990s, the CAP has also encouraged the expansion of farm forestry through the provision of Plantation Grants and Annual Forest Premiums (paid through the CAP Rural Development Pillar 2). The diversion of agricultural land to forestry lowers the supply response observed from the higher agricultural prices. Farm forestry grants were reformulated as one of the accompanying measures in 1992 CAP reform specifically with a view to taking land out of the agricultural production.

The OECD (Organisation for Economic Co-operation and Development) captured the combined effect on production and consumption of both higher agricultural prices due to government intervention and production constraints which limit the response to these higher prices in its concept and measurement of Effectively De-Coupled Support (OECD, 2001).

A provocative finding in this study is that milk quota liberalisation would reduce EU welfare. This result is explained by the fact that the EU is a significant player in world dairy markets. Increased production and net exports of dairy products after the removal of quotas drives down the world market price below its baseline level. Thus some of the gain from lower EU milk prices accrues to the countries purchasing EU exports rather than to the EU itself. Thus, the quota regime kept world dairy market prices higher than they would otherwise have been, but the welfare effects of this trade distortion depend on the net trade status of the third countries.

The EU has had a policy to encourage Biofuels since 2003. In that year, a new premium for energy crops grown outside set-aside land was implemented under the CAP (these payments were abolished together with compulsory land set aside at the end of 2008 as part of the CAP Health Check). At the same time, the EU set medium-run targets for the percentage of Biofuels to be incorporated into conventional fuels (2% in 2005 and 5.75% in 2010 on an energy basis). A Companion Directive on Energy Taxation allowed Member States to grant tax reductions and exemptions to encourage the use of Biofuels. However, these targets were not mandatory and there was no penalty for non-compliance.

In the EU, Biodiesel (produced mainly from rapeseed) plays a more important role than Bioethanol (produced mainly from wheat and sugar beet). As part of the Energy and Climate Change Package in December 2008, EU leaders committed to a binding minimum target of 10% to be contributed by renewable fuels in total transport fuel in each Member State by 2020. One study suggested that eliminating the Biofuel Mandate in 2020 would result in freeing up to 6% of EU wheat production, about 8% of other cereals production, and about 7% of EU sugar beet production. More than half of the EU vegetable oil production would be used for Biofuels in 2020 under the mandate.

While Biofuels may help the EU meet its greenhouse gas reduction targets, Biofuel production typically takes place on cropland which was previously used for other agriculture such as growing food or feed. Since this agricultural production is still demanded, it may be partly displaced to previous non-cropland such as grasslands and forests. This process is known as Indirect Land Use Change (ILUC). In 2015 new rules came into force that amend the current legislation on Biofuels – specifically the Renewable Energy Directive and the Fuel Quality Directive - to reduce the risk of indirect land use change and to prepare the transition towards advanced bio-fuels. Second- generation Biofuels get a double credit, meaning that Biofuels made out of waste and residue materials will count double towards the goal. More importantly, the Amendment limits the share of Biofuels from crops grown on agricultural land that can be counted towards the 2020 renewable energy targets to a maximum of 7% of transport fuel in the light of concerns about the impact of increased Biofuel demand food prices. These supply management and supply-restricting measures should be taken into account when evaluating and modelling the impact of the CAP on world markets.

Separating payments from the production could be an initiative which will focus more on the production for the market rather than looking up for the subsidies. One-time payment for the agriculture can make farmers to be more focused on using the subsidies on products which is more demanded in market. The question arise that how will the country like Malta will come under the same deeds as the stick rules on agriculture could not be so equal for all the countries of different economic background. But its biggest beneficiary is France and it will not be so easy to make a reform when some country is getting a good benefit from a policy. The strict rules for agriculture goods make the farmers suffer as the production of agriculture goods are vast but the test is not so perfect as the fruits and vegetables are choosing from their ship and size.

WILL THE REFORM SUCCEED?

The European Union needs to focus more on their partners’ agricultural condition. The strict rules can harm their own partners. Same can be seen in Malta, where the farmers are using huge amount of pesticides. Chemical residues in greens sold in Malta are tested randomly by the Malta Competition and Consumer Affairs Authority at a number of different sites every year. Around a dozen, farmers are currently facing charges in the court after they were found to be using more than the legal amount of pesticides on their crops. Health Authorities have warned that the residues resulting from excessive pesticide use may pose a public health risk, but also insist that it would require daily exposure to the chemicals to have any significant health impact. The European Union has regulations on the use of pesticides and maximum residue levels, which are meant to be followed by the farmers in Malta. Adequate use of subsidies on agricultural land and less use of pesticides for the fulfilment of cultivation can make some good changes in the field of agriculture for the European Union.

CONCLUSION:

Conflicting influences in future the European Union Agricultural Policy will also impact on its stance in future International Trade Negotiations. The European Union remains committed to a further significant liberalization of agricultural policies in the context of World Trade Organisation negotiations. It supported the decision to prohibit export subsidies on agricultural goods after 2020 and its most recent tariff offer foresees a significant reduction in its MFN tariffs, larger than that which it agreed to in the Uruguay Round. The European Union continues to pursue an active policy of forging free trade agreements with third countries. In these negotiations, agriculture is often seen as a defensive interest and a brake on the scope of the tariff offers which the European Union can make in these negotiations. The agreements concluded to date have had relatively minor repercussions for the European Union agriculture, apart from the agreement with Canada which is yet to be ratified. Agricultural interests in the European Union have identified concerns in the ongoing negotiations with the United States as part of the Transatlantic Trade and Investment Partnership Agreement and with the Mercosur countries of South America. These agreements have not yet been finalized and it remains unclear how these agricultural concerns will be reflected in any final texts and whether they might influence the ratification process within the European Union.

By: Navin Kumar Jaggi and Harsh Singh