Lecture 2

Lecture 2
EU’s Common
Agricultural Policy
Goytom A. Kahsay
Department of Food and
Resource Economics
Email: [email protected]
Plan for today
• Morning session
• Lecture on CAP and its instruments
• Group formation
• Group discussions
• Afternoon session
• Practical exercises (the exercise is uploaded on
absalon)
Today’s Reading materials
• Reading materials
• European Commission https://ec.europa.eu/info/food-
farming-fisheries/key-policies/common-agricultural-
policy/cap-glance_en
• Pe'Er, G., Zinngrebe, Y., Moreira, F., Sirami, C.,

Schindler, S., Müller, R., ... & Lakner, S. (2019). A
greener path for the EU Common Agricultural Policy.
Science, 365(6452), 449-451.
• Blanco, M. (2018). The impact of the Common

Agricultural Policy on developing countries. Brussels:
European Parliament. DOI: https://dx. doi.
org/10.2861/953397.
Group discussion
• What do you know about CAP?

• What is EU’s CAP?
• Write upto three Advantages of CAP?
• Write upto three disadvantages of CAP?
• Which component (s) of the CAP do you think is (are) more

important?
Main objectives of CAP
1. To ensure a fair income for
farmers;
2. To increase competitiveness;
3. To improve the position of farmers

in the food chain;
4. Climate change action;
5. Environmental care;
6. To preserve landscapes and

biodiversity;
7. To support generational renewal;
8. Vibrant rural areas;
9. To protect food and health quality;
CAP objectives for the period 2023-2027 10. Fostering knowledge and
innovation.
CAP support actions (1)
• Income support
• Market measures
• Rural development
• These are categorized under two pillars

• Pillar I: Income and market support – financed through
the European Agricultural Guarantee Fund (EAGF)
• Pillar II: Rural development policy – financed through
the European Agricultural Fund for Rural Development
(EAFRD)
• Direct farm support and market organization

• About 75% of the EU farm policy budget
• Policy measures under this pillar are general
• Rural development policy

• Improving the competitiveness of the agricultural and
forestry sectors
• Improving the environment and countryside
• Improving the quality of life in rural areas and
encouraging diversification of rural economies
• Generally, it has 50% national co-funding
Overview of CAP reforms
• The CAP has been reformed a number of times since 1962.
1992
1999
1970 The Mac 2003 2008 2013 2021
Sharry Adding
The 1988 rural Fischler Health Further A fairer,
1984 reform:
Manshol Budget from developm reform: check greening greener
Qouta ent Decoupli reform: and some and more
t plan: stablizer market
system (creation ng of further recouplin result-
moderni s support
to of the direct decouplin g of oriented
sation second payment g support policy
producer
support pillar)
Source: Daugbjerg (2017) and European Council (2022)

Group formation
• Speed dating on:

• Topic interests
• Methods
• Form a group of 3-4

The Impact of CAP on EU
• EU undertakes frequent impact evaluation of CAP

https://ec.europa.eu/info/food-farming-fisheries/key-
policies/common-agricultural-policy/evaluation-policy-
measures_en
• In the above link, you can find several impact

evaluation studies on the following categories
• Farmers and farming
• Sustainability
• Rural areas
• Research, innovation and technology
• Products and markets
• Regulation and simplification
The Impact of CAP on EU
Key findings
• Mixed effects on retaining and/or stabilizing agricultural

employment in rural areas
• Ineffective at protecting EU farm family employment
• Inequality effects of CAP payments to farmers
• Issues with balanced and sustainable development across
Europe
A greener path for the CAP (Pe’er et al., 2019)
• The CAP and the environment

• Despite the inclusion of environmental protection, the main
objectives of the CAP (productivity, farm income, stable
markets, availability of supplies, and affordable food prices)
have not been changed since the its introduction
• The largest share of the CAP budget goes to direct payments

under pillar 1
• The 2013 reform introduce obligatory measures to support

environmentally friendly practices in an attempt for “greening”
direct payments, but this has been ineffective.
• 5 main challenges of the new CAP

1. Align cap with SDGs
2. Balance instruments and
budgets
• Direct payments failed to

achieve all dimensions of
sustainability
• Greening of direct payments

largely failed to achieve
biodiversity conservation and
climate change mitigation
goals
3. Sharpen green architecture
• 40% of CAP budget 2021–2027 is labeled as “climate friendly”, but
livestock production remains supported by coupled payments.
4. Link the CAP to real impacts

• Issues related to lack of measurable targets, insufficient incentives
to deliver public goods, and insufficient sanctions for
noncompliance with environmental requirements.
• The new cap promotes results based and decentralized approaches
5. Improve the reform process

• Issues surrounding lack of transparency and knowledge integration
Group discussion
• CAP is a complex policy that involves several instruments

and targets many indicators. Discuss the most important
issues you should consider when designing a rigorous
impact evaluation of CAP? You can select one CAP
instrument and/or one CAP objective.
Agricultural policy spill-overs and inter-
national policy coordination
• EU price support motivated farmers to increase production

far beyond what could be consumed within the EU.
• Surpluses mounted from the mid/late 1970s within major

commodity sectors such as cereals, dairy, and beef.
• The EU provided export subsidies to enable sales of the

surpluses in the world market.
• This increasingly generated negative spill-over effects as it

forced down world market prices and caused a loss of
export markets for other countries.
• Resulted in export ‘subsidy war’ between the EU and the US.

Who is benefiting from price support
Input suppliers
Ressource Costs
Non-farming landowners
Farm household land
Farm household labour
Source: Daugbjerg (2017)

CAP and WTO boxes
WTO Boxes
Development
Amber Box Green Box Blue box De minimis
Box
Gradual reduction in Government services

domestic policies that (research, disease Small scale support
do have a direct effect control, infrastructure Direct payments to (AMS<=10% for developing
on production and and food security) farmers to limit countries and AMS<=5%
trade production for developed countries
Direct payments
to farmers that do not
stimulate production
(example?)
EU price support
pre- 1992 (now: EU area and
EU single farm
dairy, beef and livestock
payment
sugar) payments
CAP and WTO
Impact of CAP on developing countries (DCs)
• There are very limited studies on this topic.
• Blanco (2018) compiled these studies and analyses

the potential impact of CAP on DCs.
• What are the potential effects of CAP on DCs?
• Food security
• Agricultural investment
• Rural livelihoods
• Environment and biodiversity protection
• Job creation and migration

Impact of CAP on developing countries (DCs)
• What are the potential channels through which CAP

instruments affect DCs
• Prices and price volatility
• Market access
• Competition
• …
Causal link between CAP and DCs
• How do we identify the causal impact of CAP

instruments on developing countries?
• Disentangling CAP effect from other internal and
external factors that DCs face
• Price movements in developing countries are mostly
country-specific
• EU has given preferential access to the products of
developing countries under the Everything But Arms
(EBA) initiative (for LDCs) and EPAs (for ACP countries).
Key considerations on CAP and DCs
• Short term and long term effects?

• Trade liberalization may reduce the benefits of
preferential trade conditions for DCs
• Non-tariff barriers could be very challenging for
smallholders in developing countries
• Unintended consequences of preferential trade
agreements on DCs’ rural livelihoods and the
environment
• Blanco suggests for a case by case impact analysis as

effect may largely depend on specific features of the
agricultural sector in each developing country.
Top three take-home message of today’s lecture
1. Message 1
2. Message 2
3. Message 3

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• Pe'Er, G., Zinngrebe, Y., Moreira, F., Sirami, C.,

• Blanco, M. (2018). The impact of the Common

• What do you know about CAP?

• Write upto three Advantages of CAP?

• Write upto three disadvantages of CAP?

• Which component (s) of the CAP do you think is (are) more

3. To improve the position of farmers

4. Climate change action;

6. To preserve landscapes and

7. To support generational renewal;

8. Vibrant rural areas;

9. To protect food and health quality;

• These are categorized under two pillars

• Direct farm support and market organization

• Rural development policy

• The CAP has been reformed a number of times since 1962.

Source: Daugbjerg (2017) and European Council (2022)

• Speed dating on:

• Form a group of 3-4

• EU undertakes frequent impact evaluation of CAP

• In the above link, you can find several impact

• Mixed effects on retaining and/or stabilizing agricultural

• The CAP and the environment

• The largest share of the CAP budget goes to direct payments

• The 2013 reform introduce obligatory measures to support

• 5 main challenges of the new CAP

• Direct payments failed to

• Greening of direct payments

4. Link the CAP to real impacts

5. Improve the reform process

• CAP is a complex policy that involves several instruments

• EU price support motivated farmers to increase production

• Surpluses mounted from the mid/late 1970s within major

• The EU provided export subsidies to enable sales of the

• This increasingly generated negative spill-over effects as it

• Resulted in export ‘subsidy war’ between the EU and the US.

Source: Daugbjerg (2017)

Gradual reduction in Government services

• There are very limited studies on this topic.

• Blanco (2018) compiled these studies and analyses

• What are the potential effects of CAP on DCs?

• Environment and biodiversity protection

• Job creation and migration

• What are the potential channels through which CAP

• Prices and price volatility

• How do we identify the causal impact of CAP

• Short term and long term effects?

• Blanco suggests for a case by case impact analysis as

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