Transcript A-BJMesserlin-February2009

CAP and the EU economy
Pierre Boulanger
Patrick Jomini
Patrick Messerlin
Groupe d’Economie Mondiale (GEM)
Swedish Society of Politics and Business
Brussels, 2 February 2010
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Outline
 Assumes no change in the rest of the world (no change
in US farm policy or in any other policy in the rest of the
world).
 Starts from the Treaty Article 33: assessment of CAP



Are there winners and losers within the EU economy?
Are there net costs/benefits for the EU economy?
Framework (GTAP 2007) but lower bound because:


increased market access in the US and other world markets
not assessed
aggregation hides a lot of costs.
 What does that mean for the future CAP?
 New goals (climate change).
 Changing instruments: away from budgetary support.
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Assessing CAP: no free lunch
 Within a country, protecting a sector is to the
detriment of the non-protected rest of the
economy:
 Manufacturing, services but also forestry, fishing, and
non-supported agriculture.
 Why? Protected sectors enjoy unfair advantages
when competing for capital, land and labor.
 Countries are a bunch of sectors => favoring
some sectors is favoring some EU Member
States to the detriment of the others:
 EU15 vs. NMS12
 France vs. rest of EU
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No free lunch within agriculture


Wide differences in protection rates (see below, in %)
CAP, a misnomer? Supporting farm or food products?
Farm products
EU
France
Paddy rice
56,5
64,1
Cereals nec
25,6
4,8
Vegetables, Fruits
15,8
6,0
Cattle
0,5
1,3
Plant-based fibers
0,0
0,0
Average
19,7
-Maximum
167,0 167,0
Food products
EU
France
Sugar
127,3
87,4
Processed rice
97,9 109,2
Bovine meat
63,7
32,2
Dairy products
37,8
46,8
Vegetable oils
7,8
0,7
Average
32,6
-Maximum
428,0 428,0
Farm and food
Manufacturing
15,9
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3,9
No free lunch within the EU
(% change in output, 2007)

Among products: winners, losers and “in-between”


Potato in France: 3% farm output, no direct payments, low tariffs: The CAP reduces
the area devoted to potato farming by 8 to 17%.
Among EU Member States


Direct payments: opposite effects on EU15 and NMS12
What happens to France?
The winners of CAP
Crops
LiveFood
stock
products
Direct payments
EU15
1,92
2,52
0,76
France
2,50
2,70
0,60
NMS12
-0,49
-1,98
-0,29
Tariffs
EU15
6,23
4,93
4,92
France
4,50
4,20
3,90
NMS12
2,48
2,41
5,56
Total CAP
EU15
8,09
7,64
6,02
France
7,00
7,00
4,90
NMS12
1,97
0,64
5,61
In-between
Fruits
& Veg.
The losers of CAP
Forestry
ManuServices
facturing
-1,21
-1,70
0,49
-1,70
-2,20
1,12
-0,29
-0,40
0,26
-0,05
-0,01
6,66
4,50
4,64
-1,72
-1,40
-0,96
-1,02
-1,10
-1,29
-0,10
-0,10
-0,20
5,62
3,10
4,95
-3,35
-3,60
0,04
-1,35
-1,50
-1,12
-0,15
-0,10
-0,19
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“Working for the King of Prussia”



France: NOT the most protected EC
State. In fact, CAP:

increases the number of
competitors in the EC itself
(Italian sugar).

reduces artificially the vast
ability of French farmers to
produce farm-food varieties
(climate, soils, etc.).
As income share spent in food
decreases when income increases,
advocating for self-sufficiency means
self-destruction of French farm and
food growth because:

Rest of the world: food demand
is expected to double by 2050.

China: 450 millions of Chinese
have a GDP per capita (PPP)
comprised between Bulgarian
and Czech GDP per capita =>
huge demand of varieties of
food products.
Hence, some (many) French farmers
are among the beneficiaries of trade
liberalization and would loose from a
Doha failure.
Etats membres
Irlande
Luxembourg
Finlande
Grande Bretagne
Suède
Lithuanie
Allemagne
Lettonie
Autriche
France
Rép. Tchèque
Belgique
Slovénie
Estonie
Danemark
Slovaquie
Pays-Bas
Pologne
Italie
Hongrie
Espagne
Portugal
Grèce
Malte
Chypre
EC-15
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Protection
globale (ESP)
(%) 2002
99
75
72
72
71
62
61
59
59
59
57
57
57
55
54
54
53
47
45
44
43
43
40
37
n.a.
55
Droits
douane
(%) 2004
26,2
25,6
26,5
25,5
25,5
26,6
24,5
25,3
22,9
21,6
26,6
22,7
21,2
27,2
26,1
25,2
19,1
24,5
19,1
23,5
19,1
18,3
18,7
18,6
n.a.
21,9
Net costs



Estimating efficiency costs (resource allocation).
Liberalizing CAP means that these cost become benefits.
Note: CAP lowers world farm and food prices


Urban Africans get cheaper baguettes, but incomes of rural Africans fall
as prices of their output fall.
Efficient producers in the rest of the world curtail production (from
Australia to Africa).
"Efficiency" GDP
euros
billions
%
EU15
NMS12
World
-3,7
-34,4
-33,0
-0,44
-0,30
-0,08
Welfare
GDA
proportion
GDP loss
45%
47%
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New goals: climate change

Increased frequency
of droughts...

... but where and
how severe???

One constant in all
the scenarios: more
international trade
is needed to
increase global
resilience of
agriculture.


European history of the
decades 1770-1820.
Source: Nelson (IFPRI,
GEM)
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Page 8
Updating policies:
Declining vs. emerging CAP

Tectonic shift: much less reliance on EC budget (grey cells: heavy reliance on budget, cells
with underlined Yes: limited reliance). Perfect timing: crisis-driven inflation and CAP subsidies.
Topic
Author
Climate
change
Nelson
Water
Schultz
Le Vernoy
Energy
Levi
Food security
Swinnen
Declining policies
Market-rel.
Income Regulations
subsidies
support
Targeted
support
Yes
waste
Yes
biofuel 1st
generation
Yes
supply
based
Yes
supply
based
Yes
limited
evaluation
Yes
private
norms
Food safety
Swinnen
Quality
Swinnen
Adjustment
Moreddu
Yes
Yes
Multifunctionnality
Harvey
Risk
management
Molander
Competition
Policy
Spector
Yes
Yes
Yes
Yes
Emerging policies
R&D
Insurance Regulations
PublicInvestment
Evaluation
Private
Yes
Yes
R&D &
catastroinfrastruct. phic events
Yes
Yes
Yes
pricing &
catastroproperty
infrastruct. phic events
rights
Yes
biofuel 2nd
generation
Yes
Yes
productivity
demand
lag
based
Yes
systematic
evaluation
Yes
Yes
mutual
recognition
Yes
limited and
irrevocable
Yes
charities
Competition
policy
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
catastrophic events
Yes
Yes
retailers
CMOs
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Open
trade
Yes
insurance
role
Yes
insurance
role
Yes
Yes
Thank You for Your Attention
Groupe
A Culture
d'Economie
of Evaluation
Mondiale
in an Open World
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Concluding thoughts
 Resources are misallocated
 across sectors and Member States in the EU
 within Member States, including in France
 Sectors & farms treated very unequally

despite changing criteria for entitlements
 Border protection main source of distortions
 to the detriment of many farmers
 in favor of food producers
 Increasing decoupled payments in NMS will contribute to
maintaining an agricultural sector that is too large
 Impact on the rest of the world
 Remember African producers...
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Sustainable development


Two scenarios (source: INRA and CIRAD 2009): Agrimonde GO (growth
oriented) and Agrimonde 1 (sustainable development, with lower
consumption and production, lower productivity increase).
More trade that today in both scenarios, and more trade in the
sustainable development scenario than in the growth scenario.
Net balances by 2050
Gkcal/day
Middle East, North Africa
Subsahara Africa
Latin America
Asia
Former USSR
OECD 1990
World
Regions with deficit
Regions with surplus
Population
(million)
631
1661
773
4427
239
1066
8812
6719
2078
Agrimonde
GO
-2190
-1294
2062
-915
280
2497
440
-4399
4839
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Agrimonde
1
-2247
-3990
1898
-3178
3333
4184
0
-9415
9415
“Virtual” water

More agricultural trade crucial for solving water stresses (Le
Vernoy 2009). Such stresses (will) exist within Europe as well
(see climate change).
Forecasted withdrawals
1967
6730
1974
5970
1976
6080
1987
5190
1990
4660
1996
3940
1998
3787
Water ress.
total
Exports
renewable
EC
NAFTA
Asean+3
Mercosur+
Imports
Virtual water flows
Net balance
Total
Crops Livestock Industrial
1
2
3
4
5
6
7
2053
6410
10382
16345
420
346
213
159
592
261
308
57
172
-85
95
-102
162
-78
62
-90
-9
-7
37
-17
18
1
-5
4
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Words of caution: bio-fuels
 Three rationale: energy security, mitigate climate
change, impact on food prices.
 The effective rates of protection in EC bio-fuels, 2006
(Source: Amaral).
(%)
Germany
France
Spain
Sweden
Ethanol
>250
>250
>250
>250
Biodiesel
149
95
69
>250
Wheat
25
32
52
33
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Rapeseed
24
50
-53
French farmers and the Doha Round

There would be more French farmers who will loose from a failure of the Doha
Round than French farmers who will benefit from such a failure.

Source: Francois, van Meijl & van Tongeren (2002). Assumption: 50% cut of protection.
Shares of French farmers (%)
benefiting from a Doha Round failure
"neutral" to the Doha Round
loosing from a Doha Round failure
All
Employment Production
(2005)
(2006)
UTA
Mrds euros
22
27
19
14
59
59
100
100
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Words of caution: R&D “subsidies”
 Farmers and industrialists have both interest in R&D.
 R&D subsidies should be understood as “investments”.
 List (non-exhaustive) of key criteria ensuring the right
approach when granting R&D subsidies:





Stable commitments over a long period of time.
Wide coverage including the fundamental capacity to
perform research (education, laboratories).
Tolerance of failures that could provide valuable
information.
Institutions minimizing the risk of capture: independent
agencies, peer reviews, multi-years appropriations,
payments based on progress and output rather than on
cost recovery.
Avoidance of technology-forcing performance standards.
 Should cover developing countries: the best way to
repair the damage done by the “old” CAP.
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