Critically assess attempts by the EU to reform the Common Agricultural Policy

Critically assess attempts by the EU to reform the Common Agricultural Policy

1. Introduction

The Common Agricultural Policy (CAP) has been the centre of controversy throughout its history and has proven highly expensive and difficult to reform. The CAP remained almost entirely unchanged from its establishment at the Stresa Conference in July 1958 during more than 30 years and then was substantially reformed between 1992 and 2003. For many years with the status of the only common European Community policy governed by EU institutions, CAP is predisposed to complexity, which stems from the original policy design. Chapter 3 seeks to answer the question: ‘What was the motivation for setting up the initial CAP design’, which can give insight of the reform steps in the light of the initial policy base. By taking account of the context in which the CAP is implemented, namely the European integration, domestic developments and exogenous factors, Chapter 4 attempts to grasp the dynamics of the three major CAP reforms: MacSharry reform, Agenda 2000, and Fischler reform. The next chapter identifies the determinants of CAP reform. In line with the historical institutionalist perspective, Chapter 6 discusses causes for path dependence and policy feedback mechanisms. Finally, in regard to the growing use of the notion ‘European agricultural model’, the final chapter answers the question of whether the subsequent CAP reforms led to a policy paradigm shift.

2. Analytical framework

Patterson argues that the traditional theoretical frameworks of European integration, namely the supranational-intergovernmental dichotomy, while necessary, are not sufficient to explain policy shifts in established policy areas.^[1] Neofunctionalists predicted that CAP would generate spillover for further integration, which would direct to rationalization of farm sizes or structural policy. However, Member States retreated from radically transforming European agriculture due to domestic political pressure. Similarly, intergovernmentalists, while putting emphasis on economic motivation, explained Britain’s budget rebate, but failed to explicate France resistance of CAP reform in the 1990s facing potential losses in the industrial and service sectors failing to complete the GATT trade agreement.^[2] Therefore, theorizing the nature of the EU as a political system does not allow room for a simultaneous integration of a set of factors such as exogenous pressures; endogenous factors; policy problems that establish the need for change; and policy legacies and preferences, which are key to the conceptualisation of already established policies.^[3] Three analytical frameworks are useful to incorporate the manifold aspects of CAP. First, Patterson depicts the CAP decision making as a three-level game, ‘in which negotiations in the domestic, Community, and international levels affect policy options at each of the other levels’.^[4] These interactions between players are neither linear nor occur in isolation and they reverberate with each other.^[5] The concept is useful for comparing the role of different levels for individual CAP reforms. Second, the historical institutionalist perspective developed by Pierson focuses on the role of temporality in decision making and allows policies to be viewed as ‘moving pictures not static snapshots’.^[6] In contrast to rational choice institutionalism, which focuses only on formal institutions, historical institutionalism defines institutions more broadly to include values and norms. The concept of path dependence is central to the historical institutionalist approach and is useful as ‘a longitudinal perspective that links periods of policy continuity with episodes of reform’.^[7] It emphasises the causality of the pre-existing institutional relationships and the constraints on future decisions from past actions. The probability that further moves in one direction will encourage future developments in the same path increases with each additional step.^[8] These constraints or moves in the same direction are known as feedback mechanisms. The CAP has been portrayed as particularly path dependent, due to its ‘early developments becoming deeply embedded in a particular political environment’.^[9] Third, the growing use of the notion ‘European agricultural model’ in political discourse poses another question in line with the historical institutionalist approach: whether the subsequent CAP reforms led to a policy paradigm shift. Coleman proposes a definition of a policy paradigm, which incorporates the following elements: basic values; a set of norms which form the basis for fundamental policy goals; causal relationships which guide policy makers in the selection of policy instruments; and images that help to define a vision of the world.^[10]

3. Initial CAP design

Since the late 19th century agriculture has been a subject to public regulation through market intervention and sectoral subsidies.^[11] While Rieger saw this development as a reactive response to the Great Depression in 1930s,^[12] Knudsen argues that the idea of agricultural exceptionalism fits well into the ideational landscape of solidaristic economies of European Christian democratic and social democratic welfare models.^[13] Agriculture in the six Member States was already characterised by strong state intervention. The basic rationale, on which CAP was founded, was national intervention mechanisms transferred to the Community level. The establishment of the common market is seen as a political compromise between French agriculture and German industry.^[14] CAP enabled well-organised agricultural Member States such as France and the Netherlands to expand their markets while maintaining support for farmers and delegating the financial responsibility to European level.^[15] The unified market would rely on remunerative prices based on German high levels, where the consumers would be the primary cost bearers,^[16] and would be sheltered from international competition by a common tariff. Protectionist set of measures were selected as main policy instrument. Price support policy was the core policy instrument of CAP, which was conducted through the Common organisations of the market (COMs). ‘The most important products’^[17] for the European consumer obtained complete price support: grains, sugar, milk and beef. Other COMs received supplementary price support or were protected only by a common tariff: poultry, eggs, wine.^[18] The first objective of CAP, stipulated in Article 39 of the EC Treaty, called for an increase in ‘agricultural productivity by promoting technical progress and ensuring the optimum use of the factors of production,^[19] which can be interpreted as a vision to adopt structural policy. Structural policy aims at adjusting agriculture to the modernising economy.^[20] No provisions were made for tackling with disparities between agricultural systems in Europe. The choice of original policy instruments had in the long-term adverse consequences for the European agricultural market. First, the guaranteed prices encouraged large-scale farmers to overproduction, which ultimately led to the so-called ‘wine lakes’ and ‘beef mountains’. CAP failed to recognize dispersion in farm sizes, where the bulk of revenues went to the large scale farmers. Second, additional burden on the EU budget was imposed by the storage of food surpluses. Third, export subsidies and import quotas provoked international trade disputes, where CAP was blamed of distorting world agricultural markets. Fourth, Community enlargements altered the homogeneity of agricultural sectors, when Britain, Denmark and Ireland joined in 1973 with a stronger free-trade orientation and with the Mediterranean enlargement in the 1980s with structurally weak agricultural sectors.^[21] Finally, environmental concerns exerted additional pressure for CAP reform, because it created incentives for farmers to engage in intensive farming.^[22] As a result growing dissatisfaction with CAP pressured for reform. Social scientists and economists promoted new paradigm in agriculture, such as the Siena Memorandum in 1984 published by leading reformist academics,^[23] argued for a reduction in guaranteed prices and the introduction of direct support for farmers.

4. A three-level game: MacSharry reform, Agenda 2000, Fischler reform

4.1. The MacSharry reform (1992)

The first major CAP reform occurred in a context of crisis.^[24] At international level, external pressures arose from trade negotiations at the GATT Uruguay Round. United States and Cairns Group, a group of 14 fair trading nations including Australia and New Zealand, called for a full elimination of trade-distorting agricultural policies and pressed for reliance on market-based prices.^[25] The Commissioner for Agriculture Ray MacSharry introduced his reform proposal in July 1991 for reduction in guaranteed prices and introduction of direct income compensation, which aimed at removing the incentives of ever-higher production.^[26] The MacSharry reform also included agri-environmental and afforestation measures and an early retirement scheme that were to be co-financed by the Community and Member States. The Council retained most of the Commission’s proposals, but eased the level of price cuts, and reform was agreed in May 1992. At European level, internal pressures in terms of budgetary problems came not only from the rising overproduction, but also from the share of CAP of the total budget, which represented an impediment for the new deepening of European integration process after enlargement to Spain and Portugal and following the reunification of Germany. At national level, Germany faced a financial crisis, which questioned Germany’s attitude towards ‘supporting ever-increasing agricultural expenditures’.^[27] In the case of France, two factors contributed to agree to the reform. First, the realization that increasing production would lead to budgetary crises and second, as a very efficient producer of grains, France was ‘frightened that prices would not come down enough and that quotas would be used to limit production blunting its competitive edge’.^[28] Although the United Kingdom is a constant advocate of CAP reform, the initial proposal was opposed. This was because the Commission proposed modulation or targeting support towards smaller farms, which would affect British large and more efficient farmers, who would bear a disproportionate share of the burden of adjustment.^[29]

4.2. Agenda 2000

The 1999 reform was adopted as a part of a broader package Agenda 2000, which was intended to strengthen the Community’s policy and budget settings for the coming enlargement. The main problem was how the CAP would be extended to the Central and Eastern European countries and in particular, how the compensatory payments would be applied to these countries. Another major issue of the Agenda 2000 concerning CAP was that agricultural production was still excessive and agricultural spending was rising due to the adjustment to direct support payments. Furthermore, many Member States were concerned about the distribution of budgetary payments as nine of them have become net contributors, such as Germany, United Kingdom, and Italy.^[30] In 1995 the Commission prepared ‘Agricultural Strategy Paper’, which examined three options for the CAP future: maintaining the post-1992 CAP status quo; radical reform (such as a bond scheme);^[31] or developing further the 1992 approach. The last option was favoured by the Commission, which entailed further changes in line with the MacSharry reform. In parallel, CAP was split into two pillars, where Pillar I would encompass price support and Pillar II would address rural development problems.^[32] At national level, a set of factors contributed to the shifting public opinion towards CAP and increasing opposition to farmers’ support, such as demand for food safety, following the BSE crisis, higher environmental standards and more equity in the distribution of funds. In comparison to the European and national levels, the international level was not as significant a reform driver, although a new round of WTO negotiations was scheduled for the end of 1999.^[33]

4.3. Fischler reform

The Fischler reform of 2003 is considered more substantial than the Agenda 2000 reform. The reform was initiated by the Commissioner Fischler and made provisions for the both pillars of CAP. For almost all commodities additional price cuts were implemented. However, the most innovatory provision was the introduction of Single Farm Payment, which would be based on historical records of aid and acreage.^[34] This new mechanism for decoupling income support from production would be applied to all commodities. Garzon points out that most important problem for the CAP was no longer the imbalances of the agricultural market, but the dependence on income support generated by the direct payments, which had reduced the effect of price cuts.^[35] Another problem was that welfare distribution had concentrated on some regions and the previous reforms had done little to improve distribution of payments, which resulted in an ‘almost-mythical statistic of 80 per cent of support going to 20 per cent of farms’^[36]. At European level, Germany and France concluded a bilateral agreement on the long term financing of agricultural markets. In order to curb CAP spending, phasing-in of direct payments was planned and expenditures were capped at € 45.3 billion.^[37] In regard to the second pillar of CAP, the public was more active at European level and called for reforms with respect to environment, health standards and rural development, which questioned the CAP legitimacy. Exogenous pressures played an important role for reform facing the new round of WTO negotiations in Doha in 2001 and the failure of the WTO Seattle Meeting in November 1999, where agriculture was considered essential for the progress of negotiations. ‘Despite its active involvement in the negotiations and its desire to be seen as holding up progress, the EU had again been put under strong pressure to abandon export subsidies and to reduce substantially its domestic support.’^[38]

5. Determinants of CAP reform

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Figure 1: Main factors driving the evolution of CAP reform^[39]

Figure 1 summarises the main drivers for reform, which occur at different levels in regard to the three-level game analysis, and how they affected the CAP reform trajectory. Societal concerns, budget crises, international trade pressures and enlargement can be identified as the main determinants of policy reform. The relative importance of each of these factors depends on the reform in question. The determinant of the MacSharry reform is considered to be the external pressure arising from WTO negotiations. It has been argued that the inclusion of agricultural trade on the GATT agenda has changed the context within which the CAP evolves. There is a disagreement among CAP analysts about the role of the budgetary crisis on the MacSharry reform. In contrast to the MacSharry reform, the Agenda 2000 was designed to address budgetary rigour. Garzon argues that the 1999 reform was moderate due to the lack of external pressure and time constraints.^[40] Another key issue driving CAP reform is the accession of the twelve Central and Eastern European countries. With a higher share of agriculture in GDP, a much higher proportion of agricultural labour force, and household expenditures on food considerably above EU levels^[41] the new Member States had the potential to destabilise the budget. The relation between CAP and the budget with regard to enlargement was a main driver for the choice of policy instruments in the 2003 reform. More specifically, it was discussed whether the new Member States will be eligible for direct payments. Also increasing territorial diversity plays an important part for the determining the CAP net beneficiaries. Finally, the role of stakeholders and their ability to influence policy-makers through policy networks is another factor influencing policy change. Daugbjerg demonstrates that the reason of rejecting an introduction of bond scheme, which is an instrument to compensate farmers for income losses through a once and for all payment, is due to the high resistance from COPA.^[42] Garzon argues that at European level the dispersion of the representation of farmers’ interest increased and hence there was a gradual shift from corporatist to a pressure pluralist policy network.^[43] In parallel, non-agricultural groups also organized themselves, which explains the growing importance of the second pillar of CAP.

6. Path dependence and CAP

The concept of path dependence, which stems from the historical institutionalism, has been frequently used to describe the CAP. Path dependence emphasises the probability that further moves in one direction will encourage future developments in that same path increases with each additional step.^[44] These moves in the same direction are known as feedback mechanisms. The conception of policy feedback underlines that public policies are ‘not only outputs of but important inputs into the political process, often dramatically reshaping social, economic, and political conditions’.^[45] In relation to CAP Kay identifies three feedback mechanisms. The first feedback mechanism is the effect of the CAP on interest groups. Initial policy moves can create rents for groups to insist for the maintenance of the status quo. Pierson argues that ‘policies provide both incentives and resources that may facilitate or inhibit the formation or expansion of particular groups’.^[46] In the case of CAP, this can be expressed in two ways. First, Hix points out that public expenditure programmes have a tendency to benefit highly organized minorities at the expense of diffuse majority. CAP, as a welfare programme, is designed to redistribute income in favour of farmers, where taxpayers and consumers bear the financial burden of the policy. Hix argues that the benefits of a redistributive policy tend to be concentrated, whereas the costs are diffuse. Hence, the benefits of CAP are much larger than the cost of each individual consumer or taxpayer. In result, farmers are more likely to notice the loss in case the policy is reformed and organize themselves in comparison with the diffuse majority.^[47] Second, organized groups, such as the Comite´ des Organisations Professionelles Agricoles (COPA) enjoy control over certain important resources such as technical knowledge and sector-specific information. COPA has also a role in the ‘bureaucratic functioning’^[48] of CAP as ‘50 per cent of the membership of the Commission’s advisory, management and regulatory committees that exist for each of the CAP product regimes.’^[49] Therefore, COPA may enjoy the power to confine the range of reform options, to increase the cost of adopting alternative policies and ultimately to inhibit deviation from the current policy path. The second type of policy feedback mechanism is that policy transforms the future possibilities for policies by shifting overall state capacity. In other words, the institutionalization of the policy may affect later prospects for policy implementation. For example, structured relationships between farmers’ organizations, the Commission and national officials are likely to create path dependence.^[50] Additionally, a complex policy such as CAP may require the development of specific administration and specialization, where changing policy may be costly. The third feedback mechanism can be determined as consequences at an individual level. According to Pierson ‘policies may encourage individuals to develop particular skills, make certain kinds of investments, purchase certain kinds of goods, or devote time and money to certain kinds of organizations.’^[51] Kay argues that farmers’ expectations, independent of the activities of farm groups, may affect decision-making. The price support mechanism gave farmers the illusion that their income comes from the market and not from redistributive policy mechanisms, which hid the downward pressure on prices.^[52] ‘This came naturally to farmers as self-employed people, believing that their own fortune was being realized through hard work and good farm management skills.’^[53] Also the second objective of CAP stipulated in the Article 39 of the EC Treaty ‘to ensure a fair standard of living for farmers’^[54] represents an institutional commitment to farmers ‘without relying on farm interest group pressure as an explanatory variable’^[55]. Additional policy feedback mechanism can be found in the voting rules of the Council of Ministers. Unanimity voting can represent a major ‘lock-in’, where other policy options are blocked by the bias of the existing path. In contrast to Kay, Ackrill argues that farmers at European level had little influence in directing CAP reforms. In the early 1990s, it was estimated that active farmers only made up 4 per cent of the electorate.^[56] Ackrill provides evidence of path dependence from another angle - the budget effect of CAP reforms. The shift from price support to direct payments can be considered as a significant policy change and thus disprove the validity of path dependence when analysing CAP. However, by estimating the budget effect, expressed as ‘CAP payments from the EU budget minus CAP payments into the budget’ before and after the 1992 reform, Ackrill argues that the distribution of budgetary costs and benefits for most Member States has remained unaltered.^[57] Thus, a pattern that reflects the distribution of CAP budget flows can be observed representing the countries most active for or against reform.

7. CAP paradigm shift

The increasing use of the notion ‘European agricultural model’ in political discourse, which represents ‘multifunctional economic activity by introducing decoupling payments and increasing the role of a rural development policy’^[58], poses the question of paradigm shift. Daugbjerg argues that adjustment of policy may change interests among key actors and require further adjustments leading towards paradigm shift.^[59] This can be clearly observed in the case of CAP by the introduction of the multifunctionality concept. Coleman et al. identify four models of agricultural paradigms: dependent model, competitive model, multifunctional model, and globalised production model.^[60] Garzon argues that the European agricultural paradigm has shifted from the dependent model to the multifunctional, which explains the growing attention to the second pillar of CAP ‘Rural development’. While the dependent paradigm model is heavily protected and state-assisted and considers markets unstable, multifunctional paradigm model aims at ‘preserving the recreational value of the countryside and keep family business viable to support rural areas’^[61]. Erjavec et al., by using discourse analysis of the Commissioner’s speeches 2000-2007, show that the concept of the multifunctionality of agriculture have a growing importance for broad ‘alliance’ of interest groups such as farmers, environmentalists, food safety activists, rural preservationist, and public heath community. Starting from the MacSharry reform, the second pillar of CAP gradually developed aiming to meet the expectations of a growing number of stakeholders.

8. Conclusion

As a unique agricultural policy, CAP has a long history of immobility and transformation. The initial policy design of protectionist measures proved incompatible with economic globalisation and modernisation of the agricultural sector world-wide, which led to overproduction, environmental damage and trade conflicts. The three-level game helped to introduce the key events in relation to the major CAP reforms: The MacSharry reform of 1992, Agenda 2000 and Fischler reform, and to grasp the dynamics of CAP reform by comparing the three interacting levels: international, European and national. The important determinants of CAP reform have been identified: societal concerns, budget crises, international trade pressures and enlargement, from which international pressure is considered to be the most influential reform driver. The historical institutionalist approach and in particular the concept of path dependence have been used by public policy analysts to portray the CAP. Sources and evidence of path dependence (feedbacks) can be found in the budget effect before and after reform; the unanimity voting rules in the Council of Ministers; the effect of the CAP on interest groups, both at national and European, such as the ability of organized lobbying and access to technical knowledge; the institutional capacity; and consequences at an individual level , which stems from the idea of agricultural exceptionalism in the European welfare economy. The idea of paradigm shift has been used in regard to the ‘European agricultural model’ and the second pillar of CAP ‘Rural development’. The growing use of the concept of multifunctionality in agriculture in policy discourse aimed at meeting expectations of a growing number of stakeholders, who previously questioned the CAP legitimacy.

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^[1] Patterson (1997), p.137

^[2] Bache and George (2006), p.399

^[3] Schmidt and Radaelli (2004), p.186

^[4] Patterson (1997), p.142

^[5] Garzon (2006), p.5

^[6] Pierson (2000), p.72

^[7] Kay (2003), p.411

^[8] Garzon (2006), p.10

^[9] Kay (2003), p.411

^[10] Coleman (1998) cited in Garzon (2006), p.169

^[11] Knudsen (2009), p.30

^[12] Rieger (2005), p.162

^[13] Knudsen (2009), p.42

^[14] Bache and George (2006), p.381

^[15] Garzon (2006), p.23

^[16] Ackrill (2005), p.439

^[17] Garzon (2006), p.23

^[18] Ibid.

^[19] Article 39 of the EC Treaty

^[20] Garzon (2006), p.25

^[21] Burrell (2009), p.272

^[22] Daugbjerg (1999), p.408

^[23] Siena Memorandum (1984)

^[24] Coleman & Tangermann (1999), p.396

^[25] Daugbjerg (2003), p.408

^[26] Garzon(2006), p. 42

^[27] Patterson (1997), p.156

^[28] Ibid.

^[29] Burrell (2009), p.282

^[30] Garzon (2006), p.78

^[31] Daugbjerg (2003), p.422

^[32] Lynggaard & Nedergaard (2009), p. 296

^[33] Garzon (2006), p.80

^[34] Ackrill et al . (2008a), p.405-406

^[35] Garzon (2006), p.97

^[36] Ackrill (2008b), p.13

^[37] Garzon (2006), p.98-99

^[38] Garzon (2006), p.101

^[39] Alison Burrell (2009), p. 276

^[40] Garzon (2006), p.143

^[41] Herok & Lotze (2000), p.662

^[42] Daugbjerg (2003), p.430

^[43] Garzon (2006), p.147

^[44] Garzon (2006), p.10

^[45] Pierson (1993), p.595

^[46] Ibid.

^[47] Hix (2005), p.275

^[48] Kay (2003), p.412

^[49] Kay (2003), p.412

^[50] Bache and George (2006), p.26

^[51] Pierson (1993), p.609

^[52] Daugbjerg (2003), p. 422

^[53] Daugbjerg, (2003), p.429

^[54] Article 39 of the EC Treaty

^[55] Kay (2003), p.413

^[56] Daugbjerg (2003), p.431

^[57] Ackrill (2005), p.471

^[58] Erjavec& Erjavec (2009), p.218

^[59] Daugbjerg (2003), p. 422

^[60] Coleman et al. (2004), p.110

^[61] Garzon (2006), p.170