CAP Reform and Irish Agriculture
Irish agriculture benefits from support under the EU’s Common Agricultural Policy in three ways:
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through market price support,
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through direct income support
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through payments for public goods produced by farming.
CAP reform impacts on Irish agriculture when it leads to changes in any of these mechanisms of support.
The Luxembourg Agreement Mid-Term Review
This reform tackled the way in which direct income supports are paid to farmers. It combined various types of direct payments to farmers into a single farm payment and decoupled it from the level of production on farms. Studies suggest that, while production of beef and sheepmeat will be reduced, overall, it will have a positive impact on Irish farm income. An important consequence of decoupling is that it should help to protect direct payments from new limits on trade-distorting domestic supports in the Doha Round of international trade negotiations.
The greening of the CAP
TheLuxembourg Agreement strengthened the rural development pillar of the CAP under which farmers receive additional payments where they are farming in less favoured areas or are enrolled in an agri-environment scheme which prevents pollution and protects habitats. These payments recognise the public goods (bio-diversity, landscape) which farming produces and contribute positively to farm incomes. More stringent environmental regulations, such as the Nitrates Directive, on the other hand, raise production costs and have an adverse effect on farming.
WTO negotiations and market access
The market prices which farmers inside the EU receive are kept higher than world market prices because of import tariffs and export subsidies. The Uruguay Round Agreement on Agriculture limited and reduced the maximum height of import tariffs as well as requiring minimum levels of access for third country imports. Further cuts in maximum (bound) tariffs, as well as possibly further increases in minimum levels of access, will be required if there is a new agricultural agreement as part of the Doha Round
Because of the reductions in intervention prices (and thus market prices) agreed under Agenda 2000, some of the existing import protection is redundant. For cereals and rice, the EU’s bound tariffs do not apply, so these could be cut substantially without affecting applied rates. In some cases, EU applied tariffs could be further reduced without leading to any reduction in market prices (this is referred to as ‘water in the tariff’).
Whether a cut in the EU tariff would lead to a reduction in future EU farm prices will depend, in general, on the size of the tariff cut agreed, the degree of ‘water’ currently in the tariff, the future level of world prices and the future euro/US dollar exchange rate. In addition, commodity specific factors will play a role, such as the importance of imports under tariff rate quotas or regional or preferential trade agreements.
Another factor which could influence future support prices for some commodities is whether product-specific limits are agreed in the Doha Round for trade-distorting domestic support. With direct payments decoupled, market price support is the most important element of trade-distorting domestic support in the EU. Commodities whose support regimes have not yet been reformed by the EU, e.g. sugar, fruits and vegetables, could be vulnerable to new disciplines of this kind.
WTO negotiations and export subsidies
For some commodities, it is not import tariffs but export subsidies which ultimately support the EU market price. While, in aggregate, the EU has become less dependent on export subsidies over time, they are still an important factor in supporting the price of beef, dairy products, sugar and cereals. The EU has offered in the Doha Round to eliminate export subsidies by a date yet to be decided, provided certain conditions are met. As long as the EU is a net exporter (taking into account any contractual imports), then the elimination of export subsidies will inevitably mean a fall in EU market prices towards world market levels.
Further links:
The FAPRI-Ireland Partnership home page
FAPRI-Ireland provides model-based assessments of the impact of policy changes on Irish agriculture
Resources:
FAPRI Ireland Analysis of the Luxembourg Agreement Impact on Irish Agriculture, 2003
Report reports the results of model simulations of the impact of the Luxembourg Agreement on Irish agriculture.
FAPRI Ireland Assessment of Luxembourg Agreement impacts.pdf (413.58 kB)
