National interests and the CAP

National interests and the CAP

David R. Harvey

Development of the CAP is heavily Public policies, by their very nature, affect diverse interest groups and ClrcumscrIbed by differing nationalreflect compromises between differing and often conflicting objectives. interests refIti14 the usual agrl- The problems of achieving an acceptable, not to say optimal, balance cultural policy conflicts between within nation states are onerous enough. In the supranational context of different regional and sectoral the E uropean Community, where the divergences between interest interests. But as a supranational groups, the effects of policies and the underlying motivations for and policy with principles of community objectives of agricultural policy are much wider, the problems of preference and common financing, the CAP also redistributes the achieving and maintaining an acceptable compromise are even more burdens and benefits of agricultural support between Member States. The implications of the* features of the CAP with reference to specified alternative policies are

exPIor&

and conelusions

drawn.

The conflict between national and supranational interests is inadequately reflected to decision makers; the single instrument of price support at a common level is inadequate to meet a mix of differing national objectives; and, the assumption that the Common policy

serves

unlflentlon and integration

of the Community may be incorrect. Keywords:

Agricultural

CAP; European

economics;

integration

Dr Harvey is a lecturer in the Department of Agricultural Economics, The University, Newcastle-upon-Tyne, NE1 7RU, UK (Tel: 0632 28511).

The author wishes to expressthanks tothe Social Science Research Council, London, UK, for their sponsorship. of a research project on the CAP carried out at

Newcastle by the author, K.Thomson and Conrinuedonpage 175

174

difficult.

It is in this sense that, ‘although the common (agricultural) policy is protectionist and does not make sense economically, its creation was (and is) a remarkable administrative and political achievement. This is all the more true when it is recognised that the system covers about 90 per cent of farm output (for the Nine member states as a whole in 1979) and the produce of some seven million nine hundred thousand people’. l Given the difficulties and problems associated with a supranational agricultural policy, why was it felt necessary to develop such a policy at all? Not just agricultural policy but the establishment of the Community itself under the Rome Treaty was a delicate balance of conflicting national interests. On the one hand, the industrial countries (especially FR Germany) stood to gain substantially from the introduction of free trade in industrial goods, particularly the opening up of the French market. On the other, the predominantly agricultural nations, especially France, could establish similar gains through the derestriction of agricultural trade and access to high priced markets (especially for cereals) in the FR Germany. Thus, free trade for industrial goods without a similar policy for agricultural goods was out of the question as a politically acceptable compromise of national interests. Furthermore, differing levels of food prices and food price support could well be reflected in national wage and price levels, and hence it can be argued that some common agricultural and food price policy is necessary if free trade and economic integration of national economies is to be achieved. In addition, the agricultural industries of the foundermember countries were economically, politically and socially important. In 1955,26% of the total working population was employed in agriculture in the six cosignatories of the Treaty of Rome, a total of about 18 million people. Although a falling trend was already apparent, by 1960 the figures were still significant at 21% and 16 million respectively. Clearly

0306-9192/82/030174-17$3.00

0 Butterworth 8 Co (Publishers) Ltd

National interests and the CAP

Continued from page 174 A. Buckwell. Some results from this research are presented in this article. Thanks are due to the author’s coresearchers, to Professor C. Ritson and L. Hubbard for comments and criticisms, but responsibility for the article rests with the author. *Dennis Swann, The Economics of the Common Market, Penguin, Harmondsworth, UK, 1979, p 169, with modifications and updating by the author. 2Further discussion of these and other factors can be found in Swann, ibid; John S. Marsh and Pamela J. Swanney, Agriculture and the European Community, Allen and Unwin, London, 1980; and, the European Commission of the Communities, Agricultural Situation in the in Community, Brussels, annual, conjunction with the annual General Reports on the activities of the European Communities. Zommission of the European Communities, Reflections on the Common Agricultural Policy, COM (80) 800 final, Brussels, December 1980, p 1. 4An early analysis of these transfers was carried out by T.E. Josling and D. Hammway, ‘Distribution of costs and benefits of farm policy, Burdens and Benefits of Farm Support Policies, Agricultural Trade Papers No 1, Trade Policy Research Centre, London, 1972. More recent studies, based on the policy alternative of eliminating Community preference and common financial responsibility, have been done by the Cambridge Economic Policy Group (eg W. Godley, ‘The system of financial transfers in the EEC’, in M. Whitby, ed, Net Costand Benefit of EEC Membership, CEAS, Wye College Ashford, 1979) and J. Rollo and Wan&k, The CAP a& Resource Flows Amona EEC Member States, Government Economic Working Paper No 27, HMSO, London, 1979.

FOOD POLICYAugust 1982

any attempt to forge a Community through economic integration and policy unification, to say nothing of political cohesion, could not ignore the problems of such a significant proportion of the population.2 As the Commission for the European Communities has recently stated, ‘agricultural policy and free trade in industrial products thus remain indissolubly linked and together constitute the very basis of the Community’.3 Yet the extent to which Member States are willing to subjugate national interests to the interests of the Community as a whole is limited. In present conditions of falling economic growth rates and rising unemployment leveli and inflation rates, at differing rates in each Member State, the pressures which build up in attempts to preserve self-interest while eliminating or reducing contributions to others’ interests are imposing considerable strain on the CAP and the Community as a whole. National interests are fundamental to the CAP and satisfactory resolution of those interests is a necessary condition for the policy’s development and survival. The extent to which national interests are not satisfactorily resolved under the present policy serves as a major indicator of the areas of the policy most likely to generate political, if not economic, pressure for reform.

Supranational

policy

There is a two-way relationship between the Common Agricultural Policy (CAP) and the national interests of the Member States in agricultural policy. Firstly, the CAP is a supranational policy which operates, through the principles of community preference and common financial responsibility, to redistribute the burdens and benefits of the agricultural support mechanisms between the Member States. The net international transfers resulting from the operation of the Common policy as opposed to equivalent national policies are important in some respects.4 However, in terms of the ability of the CAP to meet national agricultural policy objectives it is the effect that the operation of the CAP has on burdens and benefits of agricultural support at the national level which are important. Second, again as a supranational policy, the CAP will always be a compromise between underlying national perceptions of, and desired responses to, agricultural problems. Because of wide differences in these perceptions and responses between Member States, the compromise is unlikely to be harmonious and will tend to be incomplete, leaving significant areas of agricultural policy out of the common framework. It would be a happy accident if the national burdens and benefits of the CAP coincided with national evaluations of the appropriate distribution of burdens and benefits within national boundaries. Brief examination of the influences on these national evaluations suggests that the accident does not and will not happen.

National burdens and benefits of the CAP Since the policy generally supports agricultural prices at higher levels than would otherwise be the case (through intervention and import levies), consumers pay higher prices than otherwise. The benefit of these higher prices accrues to domestic producers on domestically-produced commodities; to producers in other Member States on intra-EC imports

175

National interests and the CAP

SApart from a refund to national exchequers of 10% of levies collected to cover the administrative costs of collection. Gommission of the European Communities, Report on the Mandate of 30th May 7980, COM (81) 300, final, Luxemburg, 24 June 1981. 7A.E. Buckwell, D.R. Harvey, K. Pat-ton and K.J. Thomson, The Costs of the Common Agricultural Policy, CroomHelm, London, 1982. presents full documentation of these estimates and of other results of the SSRC funded research project at Newcastle University. These results are based on 1980 data for 16 commodities, wheat (common and durum), barley, oats, rye, maize, sugar, pigmeat, poultry, eggs, beef and veal, butter, cheese, skim milk powder, cream and condensed milk. The exclusion of wine and olive oil can be expected to bias agriculture or producer welfare measures downwards in Italy and, to a lesser extent, France, while the exclusion of liquid,milk as a separate commodity will bias both consumer/user and producer surplus measures downwards in all countries.

176

(because of free community trade at the supported price); and to the Community budget in the case of imports from the rest of the world, since import levies are treated as Community revenues (‘own resources’) rather than as national exchequer revenues.5 Hence, those countries importing supported agricultural commodities from the EC or from the rest of the world suffer a resource outflow to other Member States as a result of the policy. On the other hand net exporting countries benefit from a resource inflow, directly through higher prices on intra-EC trade and from Community budget expenditure on stored surpluses (intervention payments) or on exports to the rest of the world (export refunds or restitutions). Furthermore, since the levy revenue is insufficient to cover total FEOGA expenditure, Member States must make good the shortfall through general (VAT) contributions to the Community budget. National burdens and benefits will thus differ between Member States not only because of differences in individual country support levels associated with different national combinations of commodities, but also because of differences in the balance between consumers, producers and taxpayers. The common financing of the policy means that it is insufficient merely to examine CAP expenditure distribution between Member States. The revenue implications must also be included. Furthermore, Community preference and free agricultural trade at common prices means that even a complete analysis of budgetary flows is insufficient to isolate national burdens and benefits of the CAP. Estimation of these burdens and benefits requires that the alternative policy against which the CAP is to be compared be explicity specified. The conventional policy against which the effects of intervention are measured is one based on free trade at world prices. Although such an option is not normally regarded as politically feasible, and thus of limited interest, the European Commission has recently suggested that, ‘the Community’s objective should be the gradual alignment of guaranteed prices to those ruling on a better organised world market’.6 While free trade with the rest of the world (and acceptance of the resulting prices established on the world market as being fair and reasonable for Community producers and consumers) is undoubtedly not what the Commission had in mind, it does form a clear policy option against which the effects of the CAP can be measured. A more realistic policy alternative would involve marginal changes to current levels of price support, of the sort discussed and eventally agreed by the Council of Ministers at annual price-fixing meetings. The effects of both free trade at world prices and changes in common price levels have been estimated.’ These estimates rely on conventional assumptions about the responsiveness of production and consumption to price changes. They taken into account the strong interrelationships between cereals and livestock and also the degree of protection afforded to producers and consumers elsewhere in the world. It is this latter point which makes ‘world prices’ more sensitive to changes in EC export or import levels than would otherwise be the case. With respect to free markets Elimination of all common price support mechanisms would result in substantial falls in EC price levels, and some increase in world price levels for most commodities. It is estimated here that cereal prices would be less severely reduced than livestock products in the EC and that milk products FOOD POLICYAugust 1982

National

interests and the CAP

would be most seriously affected. Farmers or producers would clearly lose substantially, especially those individuals, regions and countries heavily dependent on milk production. Consumers or users of agricultural products would, however, stand to gain from lower prices and so would the Community’s taxpayers since the budgetary cost of supporting farm prices through export refunds or intervention would be eliminated. Import levies would also disappear, so that the net gain to taxpayers would not be as much as the total FEOGA guarantee expenditure, but would still be substantial. The first three rows of Table 1 show the aggregate effects, based on 1980 conditions, of the free market policy on these three groups. The net welfare effect of the policy change is shown in line 4 of the table. In the Community as a whole, and in six of the nine Member States separately, the consumers and taxpayers gain more than the farmers lose. In this sense, some members could be better off under a free market policy with the rest of the world. The Netherlands, Ireland and Denmark, however, would lose from such a policy because of the relative predominance of producers compared with consumers and taxpayers in these countries. The net changes in welfare per head of the working population and the ratio of total gains to total losses put the total figures into perspective. The figures show that the FR Germany is significantly more disadvantaged by the current protectionist policy than any other Member State, while Ireland and, to a lesser extent Denmark and the Netherlands, are the major beneficiaries of the current policy. On a basis of per head of working population (lines 7 and 8) the losses to producers (farmers and agricultural workers) are, of course, much more significant than the gains to consumers and taxpayers, and thus one might expect the losses to be politically more significant than the gains in almost all cases. Indeed, the implication of the ratio of total gains to total losses (line 6) is that if an ECU is politically just over twice as valuable in producers hands as it is in SThe figure of 1.5 shown in the table is the hands of consumers and taxpayers, then the current policy is reoeated exactlv if the member countries radios are weighied according to thevoting politically preferable to free trade in every member country. In fact, for weights in the Councit Of Ministers for the Community as a whole, the farmer’s ECU has only to be worth one majority decisions (article 148, Treaty of and a half ECUs of consumers’ and taxpayers’ expenditure in the political Rome); an unusual coincidence of political and economic weightings. arena for the current policy to be preferable.8 Table 1. National burdens and bendits of the CAP (with respect to a free market).a

Gross we/fare change 1. Agricultureb 2. Consumers and usersc 3. Taxpayersd 4. Net we/fare change 5. Net change per head working population 6. Gross gains: losses Changes per head of working population 7. Agriculture 6. Consumers and users 9. Agricultural welfare change as proportion of agricultural final production (1979)

EC9

FRGermany

France

ttatY

KafhaKands

Belgium/ Luxemblrrg

UK

-22056 +24600 +6270

-6500 +9006 +2700

-5200 +5350 +2050

-2550 +3&W +900

-2200 +1150 +566

-1150 +1050 +400

+11020

+5200

+2200

+2200

-550

+107 1.50

+209 1.60

Cl05 1.42

+109 1.66

-2600 +320

-4200 +670

-2766 +350

-650 +235

0.30

0.16

0.21

0.12

Ireland

@mark

-2560 +3700 +1450

-700 +250 +70

-1250 +450 +200

+300

+2650

-360

-600

-123 0.75

+66 1.26

+106 2.06

-374 0.46

-230 0.52

-7930 +36Q

-9160 +365

-3930 +210

-3150 +290

-6066 +270

0.25

0.26

0.20

0.26

0.29

Source: Newcastle CAP project. Notes: aMillion ECU and ECU per head of working population. kgricutturat welfare change is measured as the change in producers surplus consequent on the policy change. CConsumers and users wetfare is measured as the change in consumera surplus, at the farm gate, followingthe policy change. dTaxpayers welfare is measured as the change in national contributionsto the European budget.

FOOD POLICY August 1982

177

National interestsand the CAP

A move by the Community to a free market in agricultural products is clearly out of the question; collective national interests in agricultural protection are too strong for that. However, full compensation for the small and medium farmers (see Table 3) for their loss of welfare would cost the Community budget 5230 million ECUs, still leaving a taxpayer saving of over 3000 million ECUs compared with the current position. Such a compensation package, leaving aside the considerable administrative and technical problems, would alter the intra-EEC distribution of burdens and benefits of the policy slightly, favouring Italy, Ireland and Denmark at the expense of the remaining members. It would still leave the large farms uncompensated and, if politically feasible at all, would require phased introduction. It is questionable whether a phased saving to consumers and taxpayers of an already relatively small amount on a per capita basis is politically sufficient to outweigh the objections from farmers and their lobbies to such a policy change.

PFurther details on the budgetary settlement can be found, inter alia, in HM Treasury, European Progress Report, Nos 123 and 129, HMO, London, July 1980 and January 1981. Table 2. Burdens and berdits

With respect to common price changes The first line of Table 2 shows the ratio of total costs borne by taxpayers and consumers to the total benefits accruing to the agricultural industry as a consequence of a uniform increase in all commodity prices of 10%. Thus, on a straight dollar-for-dollar basis the welfare costs of increasing farm prices from current levels outweigh the benefits in all countries except Ireland and Denmark, by more than two to one in the FR Germany and the UK and by almost 1.8 to one in the Community as a whole. In the UK’s case, the high level ratio has been temporarily reduced by the budgetary agreement reached in May 1980, whereby the UK received rebates from the Community budget and the benefit of additional to limit the net budgetary contribution Community expenditure, (contributions to the Community budget less receipts from the budget) to f370 million in 1980. The effect of this settlement and an associated risk-sharing formula in the event of increases in gross budget contributions, can be thought of as reducing the commitment of the UK taxpayer. This has the effect of reducing the loss/gain ratio in Table 2 for the UK to about 2.10 and increases all other Member States ratios slightly according to their contributions to the European budget.9 The remaining four rows of Table 2 amplify the disparity between Member States in the operation of the CAP price support mechanisms. These figures show costs per unit increase in farm incomes (as measured by producer surplus), where the costs are defined in four different ways: the total FEOGA guarantee expenditure incurred under the CAP in each member country; the change in VAT contributions by each Member

of the CAP (with resped to common price changes).

EC9

FFlGwmsny

France

blY

Nethdand8

Belgium/

UK

Iluland

Denmark

LUXOlllbUrg

1. Ratio of total welfare loss to total gains from 10% price increase 2. Average cost of raising Farm Incomes (1960)a a) Gross FEOGA expenditure b) VAT contributions c) User welfare d) Economic welfare

1.79

2.20

1.61

1.96

1.05

1.76

2.51

0.51

0.79

0.56 0.76 0.69 0.66

0.39 0.96 1.09 1.05

0.64 0.72 0.77 0.49

0.73 0.65 1.25 0.69

0.62 0.50 0.47 -0.03

0.33 0.66 0.69 0.35

0.31 1.12 1.21 1.34

0.90 0.21 0.31 -0.46

0.99 0.37 0.30 -0.34

Source: Newcastle CAP model. Note: acost per unit increase in farm incomes.

178

FOOD POLICY August 1982

National

loSince the resource cost is measured per unit ECU transferred to producers. this cost is a) one minus the &urn of the cost elements b) the taxpayer cost, and c) the user cost (subject to rounding error). As such, it includes the transfer of taxpayers and consumers money from importing countries to the exporters producers, as well as the costs involved in misallocation of scarce economic resources in each member state. The particular results here are specific to the 1980 Community farm price package. Further elaboration of this approach can be found in K.J. Thomson and D.R. Harvey, ‘The efficiency of the Common Agricultural Policy’, European Review of Agricultural Economics, Vol 8, 1981, p 57-83. IThe assumptions here are that monetary and fiscal union would lead to a common inflation rate throughout the community, or rates behave that flexible exchange according to the purchasing power parity theory and thus in a rapidly inflating country domestic farm prices increase as the currency depreciates. *ZNevertheless, devaluation of the lira and revaluation of the ECU to take account of the appreciation of sterling in April 1981 did provide scope for adjustment of green rates. Particularly in France and Italy the devaluation of green rates translated small (possibly unacceptably small) common price changes in the 1981 price package into larger and acceptable national price changes. l3C. Ritson, ‘An economic interpretation of national approaches to CAP prices’, discussion paper to 2nd mimeo, Wageningen Seminar, 13-l 4 December 1979. “See, particularly, Theodore Heidhues, T.E. Josling, Christopher Ritson and Stefan Tangermann, Common Prices and Europe’s Farm Policy, Thames Essay No 14, Trade Policy Research Centre, London, 1978, pp 22-27; and, Christopher Ritson and Stefan Tangermann, ‘The economics and politics- of Monetary Compensatory Amounts’, European Review of Agricultural Economics, Vol 6, No 2, 1979, 119-164, especially pp 122130. %uch a gross simplification does not consider national differences in weights and interpretation of the multitude of other aims often associated with agricultural policy, ranging from local rural and regional development goals to concerns over agriculture’s foreign exchange contributions and food security.

FOOD POLICY August 1982

interests and the CAP

State as a result of changes in the net deficit under the CAP (FEOGA expenditure less income from levies, etc generated by the CAP); the change in consumer or user welfare (as measured by consumer surplus change); and, the net welfare or resource cost suffered in each country. lo The position of the UK and the FR Germany especially as the ‘paymasters’ of the CAP, is illustrated by the relationship between the gross FEOGA expenditure and VAT contribution figures. In these two countries (and to a lesser extent Belgium, Luxemburg and France) VAT contributions are considerably higher than Community budget expenditures under FEOGA. This disparitv by the . < would be accentuated addition of import levies passed to the Community budget (included as P art of the users welfare cost). Users are clearly penalized much more heavily in Italy, the UK and the FR Germany per unit increase in agricultural welfare than elsewhere in the Community. T’he net welfare cost (loss of econoniic activity as a result of the policy change) again shows the FR Germany, Italy and the UK as the major losers. On the other hand, the Netherlands, Ireland and Denmark benefit from the policy, while the losses elsewhere may not be seriously at odds with national interests in supporting agriculture, especially commercial f arms, through price support. Overlying these conflicts of interest resulting from the mechanisms of the CAP within the Treaty of Rome are the dynamic pressures for continual adjustment of farm prices. All M ember States will face pressure to raise farm prices to at least keep pace with existing inflation rates which, in the absence of monetary and fiscal union or of perfectly adjusting exchange rates,” will mean different price increases in each country. The scope for ‘adjusting’ common price changes to meet these national pressures, afforded by ability to adjust green rates of exchange, is now quite limited because of the relative stability of most national currencies within the EEC. l2 The implications of these results are not new or surprising. They are a simple consequence of the Community’s principles of free t ra d e, community preference and common financial responsibility which result in transfers of resources from net-importing countries within relatively large populations and VAT bases to the not necessarily poorer per head ‘agricultural’ members. It has also been shown that this system of shared financial responsibility for surplus removal provides some incentive for any Member State to encourage agricultural production (through, for example, national price increases through green rate adjustments relative to other members).‘3 While differences in national burdens and benefits under the CAP guarantee mechanisms are interesting in their own right, the strength of opposition to or support of the CAP which they are likely to generate within each Member State can only be assessed in relation to national evaluations of acceptable agricultural benefits and burdens.

Components

of national interest

In common the aim of agricultural major aim

with previous authors on the subject,14 it is useful to simplify agricultural policy to one of achieving the lowest level of prices that is politically acceptable and consistent with the of such policies, namely maintenance or improvement of agricultural income levels. l5 In each Member State there are three major elements which have a bearing on determining the lowest consistent and politically acceptable level of prices: the structure and well-being of 179

National

interests and the CAP

agriculture; the general economic environment; and, the political and social environment. Brief consideration of each of these elements is sufficient to show that national interests in agricultural policy are likely to be widely different. Agricultural structure

leThe latter figures are estimated on the basis of average productivity rates for each Member State. To the extent that the larger farms tend to be more efficient than the smaller ones, these figures will underestimate the contribution of large farms to total output and overestimate the contribution of smaller farms. IThe common measurement of farm size corresponding to a standardized gross margin of 1000 ECUs, roughly equivalent to the financial return from 6 ha of wheat at community average yields.

The magnitude of ‘the farm income problem’ clearly depends on the structure of the agricultural industry. Table 3 provides some evidence on the distribution of farm sizes and the proportion of total output accounted for by each of the size groups. l6 The table shows that 44% of the Community’s farms are smaller than 2 European Size Units (ESUs)17 while 24% fall into the large farm category of 8 ESUs or more (22 ha or more of wheat at average yields). While the smallest farms account for only 6.5% of total output, the large farms provide almost three-quarters of total agricultural output. Measured in this way, the distribution of farm sizes shows wide variation between the Member States. Small farms make up only 5.3% of the total population in the Netherlands compared with almost 66% in Italy, while the large farms make up 70% and 7% for these two countries respectively. The levels of price support necessary to secure reasonable farm incomes for the farming population will vary quite considerably between the Member States as a result of this variation in structure. However, in those cases where the income from farming is supplemented by income from other sources, then the necessary level of agricultural price support may be correspondingly reduced. Table 4 shows that only about 36% of Community farms provide a full-time job for the occupier, while 43.5% provide less than a half-time occupation for the farmer. Only about half of these ‘part-time’ farmers had any off-farm income across the Com-

Table 3. EC farm and output diatrtbution by farm ske (1975). EC9 Farm size 0<2ESUS (Small) 2<4ESUs 4<8 2 < 8 (Medium) 8<16 16<40 40+ 8 + (Large)

FIWKX

FR Galmany

Netheltti

KalY

Belgium/

lluhld

UK

Dmmalfl

LUXelll4Ug

Farms Output Farms Output Farms Output Farms Output Farms Output Farms Output Farms Output Fames Output Farms Output % % % o/o % % % % % % % % % % % % % % 44.3 16.0 15.2 31.2 14.0 8.7 1.8 24.5

6.4 7.1 13.4 20.5 25.0 37.1 11.0 73.1

27.1 17.2 20.3 37.5 21.7 12.2 1.5 35.4

-3.1 6.0 14.1 20.1 30.2 39.6 6.9 76.8

26.6 13.7 20.8 34.5 23.6 12.8 2.5 38.9

2.8 4.4 13.4 17.8 30.3 38.4 10.7 79.4

65.9 17.1 9.8 26.9 4.5 2.0 0.7 7.2

21.0 16.3 18.7 35.1 17.2 17.8 8.9 43.9

5.3 10.3 14.3 24.6 24.6 38.9 6.6 70.1

0.3 1.7 4.8 6.6 16.7 61.5 15.0 93.1

29.4 11.7 16.6 28.3 23.1 17.1 2.0 42.2

2.9 3.5 10.0 13.5 27.7 47.8 8.1 83.6

24.1 14.0 17.2 31.2 18.6 17.9 8.2 44.7

2.0 3.4 8.5 11.9 18.3 41.0 26.9 86.1

44.8 23.4 18.4 41.8 10.0 3.1 0.3 13.4

10.1 15.8 24.8 40.6 27.0 19.6 2.8 49.3

11 .o 13.2 21.7 34.9 29.3 21.9 2.9 54.1

0.9 3.1 10.3 13.4 27.9 48.6 9.1 85.6

NotetaClassified in terms of European Size Units (ESUs), see text and source, p 18-21. Source: Derived from Commission of the European Communities, Agricultural Situation in tie Community. 1980, Tables 69and 82. Table 4. Part-time farmars and off-farm income as propottbn of total farms. Proportion of annual work time spent on farm

with offfarmincome

< 50% Yes No 50-l 00% Yes No 100% Yes No

EC9

FRGermany

France

blY

Netherlands

Bedglum/ Luxembu~g

43.5

43.4

29.9

59.1

18.2

xl.9

8.0

23.7

31.5 22.0

33.4 10.0

15.7 14.2

25.3 33.6

9.1 9.1

17.2 13.7

4.5 3.5

13.7 10.0

20.0

10.1

18.2

24.7

10.7

8.3

20.0

16.2

5.2 14.8

6.8 3.3

3.9 14.3

3.9 20.8

6.3 4.4

2.8 5.5

18.4 1.6

5.2 11.2

UK

Emmark

36.3

46.5

51.8

16.2

70.9

61.3

72.0

60.0

0.9 35.7

2.9 43.6

0.2 51.6

0.5 15.7

3.2 67.7

4.0 57.3

0.3 71.7

1.9 58.1

Source: Commission of the European Communities, Agricultural Situation in the Community, 1980 Report, Table 84. (Irish data not available).

180

FOOD POLICY August 1982

National in&rests and the CAP

%ee Commission of the European Communities, Agricultural Situation in the Community, 1980 Report, pp 22-28 and tables 83 and 84, which also give the regional distribution of these farms within the Member States, showing a predominance of small and part-time farms, generally without off-farm income, in Southern Italy and, to a much lesser extent, Southern and Central France, the Scottish Highlands and Northern Ireland, and parts of FR Germany. W.ee, for a recent example, Commission of the European Communities, op tit, Ref 3.

munity as a whole. Part-time farms may not correspond exactly to the small farms of Table 3, but this seems likely and is broadly borne out by other evidence from the 1975 European structure survey from which these figures are taken. ** Again the distribution of part-time farms between Member States varies widely. The part-time problem is particularly acute in Italy while almost non-existent in the UK as a whole (though of regional importance even there). The same statistical source also shows that those regions with the highest agricultural incomes are also those in which full-time farms predominate whilst those regions with the lowest agricultural incomes are those with a large proportion of part-time farms. The current major problems of the CAP may be characterized as the maintenance of farm sector incomes and the control of surplus production and associated budgetary expenditure.19 The first problem relates quite clearly to the majority of farmers who are small-scale and often technically part-time operators while the second has greater implications for full-time commercial enterprises. In this sense, the UK, the Netherlands, and to a lesser extent parts of France, Belgium and Luxemburg and Denmark will be likely to be concerned over appropriate measures to curb production through explicit price and income penalties. But FR Germany, Italy, Ireland and also France have cause for concern over improvements of farm incomes at the lower end of the scale spectrum, while all countries have such concerns for particular ‘less-favoured’ regions. The mix of commodities produced within a country will clearly influence national policy stances. At a general level, the more important a particular commodity is in the total agricultural output of a country, the more likely it is that policy measures will be directed specifically to that commodity. Table 5 shows the proportion of total agricutural output in the Community accounted for by the major commodities and also lists those countries in which the commodity is substantially more important than over the Community as a whole. This illustrates obvious biases in national interests, for example towards sheep in the UK and France, and potatoes in the UK, although the dairy farmer is almost everywhere regarded as a special and deserving case for protection. Conflicts are bound to arise between countries attempting to support agriculture through common price levels for each commodity when the distribution of commodity production between countries is far from uniform.

General economic environment National concern over farm incomes is likely to depend on the relationTable 5. Commodity specialization

Source: Commission of the European Communities, Agricultural Situation in the Canmunify, 1960, Table 03.

FOOD POLICYAugust 1982

in the Community (1979).

Commodity

% of total EC final agliCUltlM produ~

Counhiss In which commodity is mom important thantheCommunityasa~(%otcountryfinal PWfo@

Cereals Milk

11.5 19.5

Beef and veal Pigmeat

15.6 12.1

Pouitrv and egos Sheepmeat --

7.4 1.4 2.3 10.9

France(16.2), Denmark (16.1), UK (14.9) Luxemburg (41.2), Ireland (32.1), Netherlands (27.9), Denmark (25.3), FR Germany (24.2), UK (22.2) Ireland (35.6), Luxemburg 30.3) Denmark (27.9), Belgium (23.2), FR Germany (19.6), Netherlands (16.1) UK(12.1) UK i3.9).‘lreland (3.4), France (2.0) UK (4.5), Netherlands (3.6) Italy (19.4), Belgium (13.4)

potatoes

Fruit and vegetables

National interests and the CAP

ship between agricultural incomes and those of the rest of society rather than on intra-agriculture comparisons. Whilst difficult to gauge, Table 6 presents some indicators of the levels and rates of change in farm incomes relative to the rest of the economy. As the most aggregate of measures of relative incomes, gross value added per head of the working population will include all returns to the farming business, including paid and nonpaid labour, managerial input and returns on capital employed. The second row of Table 6 shows values added per head in agriculture as a proportion of those in the economy as a whole. In all cases, agricultural incomes are shown as being lower than those in the rest of the economy, on average. This disparity is greatest in FR Germany, followed by Italy, France and Denmark. Throughout the Community, with the single exception of the Netherlands, gross value added in agriculture grew, if at all, less rapidly than the economies as a whole over the period 1973-78, but because of the continued exodus of labour from agriculture in all countries, gross value added per head of the labour force has grown by rather more than average growth rates, except in France and the UK.20 This relatively fast rate of growth in labour productivity within agriculture has been associated with farm wages increasing at a rather faster rate than those in the rest of the economy in all members apart from the UK and Ireland. Such faster rates of growth in agriculture should result in a closing of the gap between agricultural and non-farm incomes. However, the recent past has been characterized by less rapid increases in farm prices than in the mid- 1970s and a generally more rapid inflation rate in all Member States. As a result the improvement during the mid-1970s shown in Table 6 has not been sustained in the early 1980s. Differential inflation rates between Member States also lead to different national concepts of the appropriate rate of change of farm prices. From the purely agricultural perspective, rapid increases in the general price level will usually be reflected in increases in farm costs and hence pressure on farm incomes, in addition to reducing the purchasing power of farm incomes themselves. Thus one would expect those countries with high inflation rates to argue for relatively rapid increases in policy controlled agricultural prices. However, the position is complicated by the effect and political importance of farm price increases on the general rate of inflation, and also by the policy mechanism itself which, through green rates of exchange, allows a certain latitude to Member States in changing domestic farm price levels independently from changes in common prices. Finally, the willingness and ability of the rest of the economy to support

*oThe UK figures should be treated with caution, however, since they are heavily based on the drought years of 1975 and 1976. The author has not been able to isolate the cause of the apparent contradiction between generally faster growth rates in values added per head in agriculture than the growth in the economy, and stable or declining relativities between agriculture and the rest of the economy over approximately the same period. Table 6. Farm incomes: selected indicators. EC9

FR Germany

France

ftatY

NeWrlands

Belgium/

UK

Ireland

Denmark

LUXWllbUrg

GDP/head (1978, ECU) GNP/employment ratio (1979)a Annual average rates of growth (1973 to 1977f79 average, %) GDP (volume) Gross value added (agriculture, 1975 prices) Gross value added per unit labur (1975 prices) Farm wages (real terms) Economy wide wages and salaries (real terms)

5980 0.85

2.2

8190

6969

3600

7390

7540

4345

2910

6610

0.34

0.54

0.50

0.68

0.80

0.65

0.85

0.58

2.2

2.7

1.1

4.1

1.7

1 .o

3.2

-3.6c

2.5

0.4

2.0

7.9 -1.4

2.3

-1.5

0.1

-1.0

1.5 n.a.

4.1 4.2

2.3 6.8

3.5 8.7

5.0 4.2

2.8 6.0

-t.lb 2.3

5.2 3.4

1.7 3.0

3.0

3.0

4.6

0.9

2.9

5.0

2.4

6.2

2.0

Notes: aProportion of total GNP in Agriculture t proportion of total labour force in agriculture; cl 974/6 average on 1973. Source: Eurostat, European Commission. Agricultural Report 1980, and authors calculations.

182

FOOD POLICY August 1982

National interests and the CAP

agriculture through transfers of income either through relatively high consumer prices or through exchequer payments will depend on the prosperity of the rest of the economy. Those countries with generally lower income levels (Italy and Ireland) are unlikely to be willing or able to afford the support levels considered by richer countries (FR Germany, Benelux) as appropriate. Political

*“Every French family has relatives in the country, is proud of being of rural origin, and accepts the support given to agriculture’ (Simone Nidenburg, ‘French agriculture in the European Community’, Journal of Agricultural Economics, Vol29. No 3, September 1978, p 228).

and social

environment

National perceptions of and responses to the need for agricultural support are conditioned by the political and social environment as much as by economic considerations. As an elementary indication of political importance, the percentage of the working population employed in agriculture shows wide variations in the Community, from a low of 2.6% in the UK to a high of 21% in Ireland (Table 7). Thus one would expect farm policies to be higher on the political agenda for Ireland, Italy, France, Denmark and FR Germany than elsewhere in the Community. However, the split of the total agricultural labour force between self-employed farmers and the paid agricultural labour force will also influence the nature and extent of agricultural political pressure, as will the make-up of the farmers lobby itself between full-time commercial and part-time farmers for instance (Table 4 and Table 6). The importance of hired labour in the total agricultural labour force in Italy, the Netherlands and the UK is likely to reduce the strength of farmers’ lobbies from that indicated by the total labour force proportions. In every country the agricultural population has been declining fairly rapidly (Table 7), especially in France, FR Germany and Belgium. At first sight this decline might be thought to lead to a declining political base for farm lobbies and pressure groups. However, the power of those groups depends not only on the size of the directly employed labour force but also on the sympathy and understanding they receive from elsewhere in society. In many Member States, especially France, Italy, Ireland and FR Germany, a large proportion of the population will have family, ancestral or historical connections with agriculture and thus may well be sympathetic to agricultural aspirations even though with no direct interest in farm fortunes. A declining labour force augments this population, which may tend to have outdated and perhaps romantic notions of agricultural problems, thus colouring the political and social perception of issues and remedies.2’ A rather different perspective will be taken by agribusiness and ancillary industry interests and pressure groups, likely to be concerned about

Table 7. Indicator, of politicalweigM. EC9

FR Germany

France

blY

Nedhdands

Belgium/

UK

Ireland

Denmark

29.4 24.8 21 .o

12.8 9.5 8.3

LUXemburg Agriculturallabourforce as % of total workingpopulation 1968 1973 1979 Salaried labour as % of total agricultural labour (1979) Annual average rate of change of agricultural labour (1968-1978) Intermediate consumption (excluding animal feed) as % of final production (1979)

12.0 9.2 7.7

15.7 11.1 8.9

22.9 10.3 14.9

17

20

37

25

10

58

11

25

-

-3.8

4.5

-3.4

-2.2

-4.9a

-2.0

-2.9

-3.3

24.0

34.4

26.0

10.6

19.0

23.8a

28.6

23.9

24.7

29

9.9 7.5 6.2

7.9 6.8 6.0

5.7 4.0 3.3

3.5 2.9 2.6

Notes: aBelgium only. Source: Commission of the European Communities, Agricultural Situation in the Communify, 1980.

FOOD POLICYAugust 1982

183

National

interests and the CAP

zzSee, as recent examples, S. Tangermann, ‘Germany’s role within the CAP: domestic problems in international perspective’, Journal of Agricultural Economics, Vol30, No 3, 1979, pp 241-259; and, M. de Benedictis, ‘Agricultural Development in Italy: national problems in a Community framework’, Journal of Agricultural Economics, Vol 32, No 3, 1961, pp 275-266. Wee Tangermann, ibid, though one may ask how long a system such as the CAP needs to be in operation in the UK before it achieves some measure of tradition and common acceptance. z41t should be noted, however, that these figures are often disputed by Member State governments however careful the Commission staff have been in trying to make them comparable. In comparison, in 1977, Gross FEOGA expenditure under the CAP amounted to 7.4% of the value of final agricultural production in the Community (Commission of the European Communities, op tit, Ref 18).

the prosperity and growth prospects of commercial or industrial farms. Again the extent of ‘industrialization’ of agriculture varies widely within the Community, at least as measured by farm size (Table 3). A further indicator is the expenditure on purchased inputs (roughly intermediate consumption excluding animal feed). Perhaps surprisingly, FR Germany and France, as well as the UK, seem to stand out as likely to have strong supporting pressure from ancillary industries (Table 7). Perceptions and policies are also likely to be strongly influenced by the history of agricultural policy if for no other reasons than the inertia of existing policy within the democratic process and the political and social acceptability bred of familiarity. The UK is often held to be atypical in its policy towards agriculture compared with the continental countries. Certainly France, Italy and FR Germany have long histories of so-called ‘protectionist’ policies, that is protective through trade tariffs and restrictions, while the UK has usually been characterized as following a policy of free trade in agricultural products and supporting farmers at the expense of the taxpayer rather than the consumer.** Such a distinction is oversimplified in that the UK has used import controls and tariffs from time to time and continental Europe has not totally eschewed exchequer support of agriculture. However, the traditional method of support of agriculture may well tend to colour social and political perceptions of acceptable policies in favour of the status quo. Thus there is considerably more antagonism towards a policy which supports agriculture at the expense of consumers in the UK than there is in FR Germany.*3

The CAP and national interests Perhaps not surprisingly in view of the wide variety of national interests in agricultural policy, the CAP allows some scope for compromise between Member States, and also allows for considerable national autonomy in agricultural support (most broadly defined) which is often forgotten in discussions of agricultural policy. According to the European Commission’s figures, Member States total expenditure on agriculture under national policies is at least equal to the combined gross expenditure under the CAP.24 Table 8 shows these national expenditures as a proportion of the value of final agricultural production in each country. The majority of national expenditure is aimed at production measures and tax relief (of relevance to commercial farmers) and social security (of greater significance to small farms with limited longer-term economic viability). Only among the new entrants to the Community does the consumer receive significant government assistance, reflecting in part the historical acceptance amongst the founder members of consumerfinanced agricultural support. FR Germany, France and Italy all show

Table 8. National expenditure on agricuiture (1977).a Expenditure

category

EC9

FR Germany

F~flCe

blY

Netheflands

Belgium/

UK

Ireland

Denmark

LUXWlbUrg

General measures Production Marketing Miscellaneous

0.9 3.2 0.5 0.9

5.4 0.3 _

1.9 2.7 0.6 3.4

Consumption Tax relief Social security

0.4 1.9 6.8

2.0 6.0

14.8

13.8

Total national expenditure

2.3 0.4

0.9 1.9 0.6

0.8 14.1

4.6

0.7 0.8

23.7

7.5

4.8

1.1 3.1 0.3

1.5 3.7 0.9 0.1

0.7 2.4 1.3 -

1.3 1.1 0.5 -

_ 4.8

2.8 10.0 2.1

2.3 2.8 3.4

1 .o 5.1

9.3

21.3

12.9

9.2

Note: aAs proportion of value of final agricultural production. Source: Commission of the European Communities, Agricultural Situation in the Community, 1980.

184

FOOD POLICY August 1982

National

interests and the CAP

substantial proportions of national expenditure directed to social security of farmers in contast to the UK and the Netherlands, corresponding to the differences in agriculture structure in those countries. The total levels of national expenditure are broadly consistent with the arguments above, given that the CAP itself provides significant levels of support especially to commercial farmers. The relatively high expenditure in the three new entrants is perhaps explained again in terms of historical acceptance of exchequer support, while the comparatively low level in FR Germany reflects a disinclination to spend taxpayers money.25 The lower levels of support in Italy could be explained in terms of the relative poverty of the country26 and of the structure of the agricultural population, while the low level in the Netherlands may reflect the degree of relevant support offered by the CAP. The CAP itself, composed of the Guarantee or market support measures and the Guidance or structural support measures, offers some scope in principle for variations between Member States in the level and mix of support policies. In practice, however, the Guidance fund accounts for only about 5% of total Community agricultural expenditure and the main burden of accommodating competing and conflicting national interests within the CAP has to be borne by the price support mechanisms. In this the role of green rates of exchange and monetary compensatory amounts (MCAs), has been significant, and has been extensively analysed.27 A conclusion of this analysis has been that the MCA system has allowed Member States to satisfy conflicting national objectives for agricultural prices within an otherwise rigid and inflexible system of common price determination, thus allowing the CAP to survive, in contrast to the maintained position of the European Commission that, ‘continuation and . . . increase (of MCAs) would certainly have led to the break-up of the common agricultural policy’. 28 A successful European Monetary System, as has already been noted, might be expected to reduce the scope for adjusting national price levels independently of common prices and thus force national differences to be reconciled within the framework of common prices.

National interests and the CAP Table 9 is an attempt to bring together the major national interests in agricultural policy and the ability of the price guarantee mechanisms of Wee Tanoermann. OD cit. Ref 22. the CAP to meet those interests for each Member State. To do this in one ZbWhere GNP per head is about 60% of table requires gross simplification of the various aspects of national the Community average. interest. Here these aspects are represented as: farm income levels; farm *‘See especially T. Heidhues, et al, op tit, Ref 14; and C. Ritson and S. Tangermann, income improvement; consumer or user costs of agricultural support; and op tit, Ref 14. taxpayer cost of agricultural support. As above, such a simplification *8Commission of the European Communiignores a host of other goals and objectives ascribed to agricultural policy ties, Reflections on the Common Agricultural Policy, COM (80) 800, final, with varying degrees of importance in various countries at various times. December 1980, p 2. These range from regional and rural development or protection aims 29The foreign exchange saving argument various stabilization objectives to attempts to improve foreign is explored in more detail elsewhere, for through example, T. Josling, Agriculture and exchange or balance of payments performance and to secure the national Britain’s Trade Policy Dilemma, Thames food supply. The implicit assumption here is that these goals are subEssay No 2, Trade Policy Research and that, for analytical purposes at least, they can be associated Centre, 1970; while the issue of security of sidiary food supplies and the appropriate level of with either the pressures to maintain and improve farm income levels or self-sufficiency is addressed by C. Ritson, with pressures to minimize consumer or taxpayer burdens of agricultural Self-Sufficiency and Food Security; CAS support. 29 Paper 8, Centre for Agricultural Strategy, University of Reading, 1980. For each component of ‘the national interest’, a simple measure of the

FOOD POLICY August

1982

National

interests and the CAP

Table 9. CAP effects and national interests: a compatison of ranks within the EC. FR Germany France

Nethsdands Belgium/ Luxemburg

UK

treland

Denmark Correlation coefficient

7. Farm income levels

a) CAPeffects b) National interests 2. Farm income improvement a) CAPeffects b) National interests 3. Consumer costs a) CAPeffects b) National interests 4. Taxpayer costs a) CAPeffects b) National interests Correlation coefficient

1

7 3

6 2

5 6

3 7

6 6

3 4

2 4

+o.O‘t

5 1

7 3

8 2

2 6

1 7

4 6

6 5

3 4

-0.64c

6 4

5 6

6 7

3 3

4 2

7 1

2 6

1 5

-0.17

2 2 +0.76c

3 5 +.56

5 7

6 4

4 3

6

I

8 8

7

+0.06

+.75c

+.32

+0.04

+0.51

+.32

1

1

+0.12

Notes: The table shows rank orders between the Member States of the following measures: 1(a) : Agricuttural producer surplus generated by the CAP compared with free trads at world prices as a proportion of final agricultural production (1979). see Table 1, row 9. 1(b) : Proportion of total GNP in agriculture + proportion of total labour force in agriculture (1979). see Table 6, row 2. 2(a) : Increase in agricultural producer surplus per head of agricultural labour force from a 10% increase in common prices for all ccfnmodiiies. 2(b) : as l(b) above. 3(a) : Increase in user costs(as measured by decline in consumer surplus) per unit increasein farm incomesfollowing a 10% increase in common prices, see Table 2, row 2(c). 3(b) : Non-agricultural working population as a proportion of total working population, see Table 7, row 3 subtracted from 100. 4(a) : Increase in tax contributions per unit increase in farm incomes following a 10% increase in common prices, see Table 2, row 2(d). 4(b) : GDP per head, 1978, in ECU, see Table 6, row 1. csignificantly different from zero at 95% confidence level.

JOThis coefficient would be + 1 if the CAP ranking were identical with the national interest ranking, -1 if the rankings were exactly opposite, and zero in the case of no correlation between the two rankings. 31The measure of national interest is extremely crude, as average agricultural incomes per head. A more sophisticated measure would take account of the structures of the agricultural industries (see which casual observation above), suggests would worsen the relationship between CAP effects and national interests.

186

strength of national concern in each Member State has been chosen, as detailed in the notes to the table, and Member States have been ranked according to these measures. Thus, national concern over the level of farm incomes (and thus the desire to protect agriculture from free world market forces) is taken as being measured by the ratio of agricultural incomes per head to those elsewhere in the economy. So measured, relative concern over farm income levels will be strongest in FR Germany (rank 1, row 1 b) and weakest in the UK (rank 8, row 1 b). The effectiveness of the CAP in meeting these different national concerns, on the other hand, has been measured here as the additional value-added (producer surplus) generated for the industry by the CAP compared with free trade at freely determined world prices, expressed as a proportion of final agricultural production. So measured, the CAP offers the greatest protection to German agriculture and the least to Italian producers (row 1 a). The correspondence between the rank-order of national interests in farm income levels and the protection afforded farm incomes by the CAP is shown by comparing the two rows of Table 9 (la and lb). Statistically, it can be measured by a rank-order correlation coefficient.30 The figure 0.04 for farm income levels is to all intents and purposes zero and indicates practically no correspondence between the relative strengths of national interests and the effectiveness of CAP. While there may be resons why, even under an ideal policy, the degree of protection afforded by the policy would not necessarily be correlated closely with the current gap between farm and non-farm incomes, one would hope that an effective supranational policy for farm income improvement would be most capable of improving incomes in those areas (nations) where the disparity between farm and non-farm incomes is highest. Row 2a shows the ranking of the effectiveness of CAP price support mechanism in raising agricultural value-added in each Member State. Comparison of rows 2a and 2b show that, in general, the stronger is the national interest in improving farm incomes, the less effective is the CAP, and vice versa. That is, national interests are negatively correlated with the supranational policy effects.31 FOOD POLICY August 1982

National interestsand the CAP

Similarly, rows 3a and 3b suggest that the relative strengths of national concerns about consumers or users costs incurred by supporting agriculture do not correspond at all closely with the extra burdens imposed on users by the CAP as a result of increasing farm prices from current levels. If anything, the correspondence is again negative, that is the opposite for what one might hope for. The correlation is not markedly improved if the measure of national consumer interest is expressed as the food expenditure proportion of total consumption expenditure in each country, rather than as the relative size of the non-farm population, though the correspondence is improved for some countries (especially the UK and Ireland), and decreased for others (Italy and the Netherlands). The simple assumption about national interest in taxpayer burdens of agricultural support is that richer Member States (in GDP per head terms) will be less concerned about exchequer cost than poorer countries. On this basis the relative member interests correspond slightly more closely to the CAP effects on taxpayer costs than is the case for the other components of national interest, but the correlation for the Community as a whole is still statistically indistinguishable from zero. An alternative measure of national acceptance of exchange support is the proportional share of GDP accounted for by government expenditure in each state. The correspondence between this alternative and the CAP effects is considerably worse (-0.53). The European Commission, as the protectors of the European ideal, have stoutly defended the Common Agricultural Policy. In the words of the Report on the Mandate:32 The construction

of the Community, founded on solidarity and economic integration, . . . has developed on (the) basis . . . of a common agricultural policy which allows the free movement of agricultural products (~3). The Commission considers common agricultural policy is financial solidarity - remain jettison the mechanisms of the

32Commission of the European CommuniRef 6, p 3 and p 12.

ties, op cif,

FOOD POLICY August 1982

that the three inter-related principles on which the based - market unity, Community preference and essential. It is neither possible nor desirable to common agricultural policy (~12).

However, the comparison of likely national (regional) interests of the Member States in agriculture with the effects of this Common Agricultural Policy, as illustrated by the rows of Table 9, strongly suggests that unification and integration of the Member States is not being served by the CAP. Not only is this in spite of the common principles, in large measure it is because of the common principles. In this sense, the CAP serves member interests less well than some other differentiated (although communally agreed) policy. Continued adherence to the common principles may be seen as exacerbating the international conflict of interests and hence endangering the survival of the Community. In contrast to the ability of the CAP to achieve differing national interests across all Member States (the unifying potential), Table 9 also indicates the degree of sympathy each individual country might be expected to have with the CAP (that is, the acceptability of the current CAP to Member States). Judging by the correspondence between the strength of national interest and the ability of the CAP to meet these interests in each country (the columns of Table 9), only the UK and Italy would seem likely to find the policy unacceptable in its current form (and the method of assessing CAP effects probably biases the results against Italy). FR Germany, France, the Netherlands and Ireland especially can be expected to find the current policy more or less consistent with their

187

National interests and the CAP

s3At least some Finance Ministers may support higher farm prices since some Member States (Ireland, Denmark, Netherlands especially) will receive more in FEOGA expenditure and balance of trade gains than it will cost them in VAT contributions. However, the traditional arguments about the foreign exchange saving and earning role of agriculture is clearly affected adversely by the fact that the instrument is a common rather than a national increase in farm prices for the countries such as the UK and FR

Germany.

188

national interests, and thus worthy of continued support. These results are not markedly affected by the substitution of alternative measures of national interest mentioned above. This acceptability of the CAP means that, in spite of the lack of unification and the resulting conflict involved in the policy, there may be little political pressure within the Council of Ministers for explicit reform of the CAP, especially given that any reform is bound to involve some losers as well as gainers and hence political difficulty and bloodshed. The understandable lack of political will for reform in the Council of Ministers is, however, supported and buttressed by the European Commission which is, perhaps falsely, convinced of the unifying power of the CAP. But there are aspects of the CAP and national interests which give rise to an even stronger implication; namely that there will be concerted pressure to raise farm incomes through the generally inefficient mechanism of CAP price increases. This will tend to ensure that the CAP continues to account for the lion’s share of the Community budget (again in contrast to the European Commission’s view that the dominance of agriculture in the European budget is due to the lack of development of other policies rather than to any pathological feature of the CAP itself). Briefly these aspects are as follows. First, the objective of maintaining and improving farm incomes may be taken as the dominant objective among the constellation of national interests in an agricultural policy. Second, the CAP price support mechanism seems to be broadly acceptable to the majority of Member States, based on the analysis presented here and on the evidence of the history of the policy, and is thus likely to be a major instrument used to support farm incomes. Third, those countries with the strongest interests in raising farm incomes will generally be those needing the largest increases in common prices to achieve this objective. That is, these countries will be less willing to agree to lower piice increases or more willing to trade other interests for larger agricultural price increases. Typically, within national policy formulation processes, such pressures in favour of increasing levels of agricultural support are subject to the counterveiling power exerted by treasuries, trade interests, consumer pressures and so on. While such pressures undoubtedly exist at the community level, their action is more indirect than in national cabinets since it is the Council of Agricultural Ministers (albeit mandated by their domestic cabinets) who decide on Community price packages, rather than, say, the finance or treasury Ministers.33 Thus, the institutional arrangements would seem to indicate a more powerful position for agricultural interests within the Community than might be the case in at least some individual Member States. However, it is true that until now Common price increases have not on average been markedly above inflation rates, rather the reverse. Moreover, on 1981 and projected 1982 figures, the CAP is consuming a smaller rather than a larger share of the limited Community budget than previously. These facts do seem to contradict the thesis that CAP spending will tend to increase to consume all of the available budget funds. However, until recently the fluctuations of Member State currencies against the European unit of account allowed Member States to increase domestic prices independently of increases in common price levels (and thus generally more in line with national interests) through adjustments of MCAs and green rates. To the extent that relative exchange rate movements are reduced through the European Monetary System, this

FOOD POLICY August 1982

National interests and the CAP

adjustment will no longer be possible. As a consequence, the pressure will be for less-than-prudent Common price increases, as evidenced by the price settlements for 1981 and 1982. The recent economy of the CAP in terms of FEOGA expenditure is largely a consequence of favourable world prices and less rapid growth of European production levels than occurred in the 1970s. Neither of these circumstances can be relied upon for the future, while already declining farm income levels in the Community will increase the pressure for more favourable (and more costly) price settlements. The fall in the CAP expenditure as a proportion of the total European budget is also partly attributable to the increase in budgetary repayments and ‘compensatory programmes’ (and consequent increase in the total budget) in favour of the UK. It can be argued that the political necessity for these payments is largely a consequence of the dominance and international distribution of CAP budgetary burdens and benefits. To that extent, the apparently declining share of CAP in the total budget is misleading. Continued adherence to the CAP principles seems likely in the future to ensure that the CAP continues and increases its dominance of the budget. Unless something is done, the European budget ceiling (of levies and customs duties plus a 1% VAT revenue), will eventually be reached. Apart from raising this ceiling, the only escape valve is increased use of ‘producer coresponsibility’. Taxes on producers to pay for surplus disposal, which are likely to be used to justify further price increases to defend farm incomes, neatly demonstrate the Alice in Wonderland quality of the CAP.

Conclusions National interests in agricultural policy are not universally satisfied and reconciled within the Common Agricultural Policy. Furthermore, national interests are themselves distorted by the CAP and budgetary mechanisms of the EEC. Until now the distortions and divergences have not been sufficient to generate the political will within the Council of Ministers to seriously consider reform or restructuring of the CAP. It is difficult to forsee the circumstances under which such a consideration might occur. It is possible that a combination of resonably regular and favourable world market conditions, fortuitous currency movements and consequent green rate adjustments, exceptions and limitations on CAP expenditure mechanisms and, in the extreme, budgetary exceptions and rebates will suffice to keep the current CAP in being in spite of wide conflicts and differences in national interests. However, it is also possible that increasing divergence between national interests, reinforced through ever-growing CAP support measures, will generate sufficient pressure on national governments to increase uncoordinated and competing national support measures. Such action could threaten the CAP financially if agricultural supplies, surpluses and FEOGA expenditure rise as a consequence, and would further erode the claim of unity and common purpose expressed through the CAP. In the limit, divergent national interests could be sufficient to lead some members to reconsider membership. The withdrawal of the UK from the Community would, for example, leave the remaining members with severe surplus disposal and CAP expenditure problems and would almost certainly lead to some changes in European agricultural support levels and mechanisms. It is in this sense, as well as in the recurring problems of national FOOD POLICYAugust 1982

189

National interests and the CAP

conflicts within the current CAP and European budgetary mechanisms, that the incompatibility of national interests and supranational or European interests within the CAP require urgent attention. In this context, the current political pressures for reform of the CAP are confused, if not conflicting. Those deriving from a desire to maintain unity appear in favour of retaining the basic principles and elements of the CAP (as perfectly demonstrated by the arguments of the Commission in the recent Reflections and Mandate report documents). Yet in many ways the continued use of these principles combined with the national pressures to maintain self interest as modified by the CAP may lead to less rather than greater European unity. A more sophisticated and flexible view of European unity and integration is needed, capable of admitting and catering for different national interests. There is little sign of this view developing within the Commission and hence limited prospect for its active discussion within the Council.

190

FOOD POLICY August 1982