Agricultural Policy: What's Next?

www.missouri.edu University of Missouri

Agricultural Policy. What’s Next? Lars Hoelgaard, Deputy Director-General University of Missouri’s Transatlantic Center, Brussels, 14 January 2009

Direct Payments

Historical model

Regional model

Flatter rates?

SAPS – New Member States – 2013/2016

University of Missouri, Brussels, 14 January 2009

Cross compliance - CC

SMR’s – health, environment, animal welfare

Good Agricultural and Environmental Practice – GAEC

Permanent pasture ratio

Water management – buffer strips

Direct support

Partially coupled support and other aid schemes

Full decoupling from 2010 for arable crop, durum, olive oil and hops

From 2012 for beef and veal, rice, nuts, seeds, protein and aid for starch growers

Abolition of energy crop premium

MS allowed to maintain coupled support for suckler cows, sheep and goats

Article 68

Specific support – 10% of direct payments

Environment, quality, animal welfare

Sector specific dairy, beef and veal, sheepmeat and rice

Max. 3,5% coupled

Insurance and mutual funds

Article 70: Crops, animal and plant insurance

Article 71: Mutual funds for animal and plant diseases

Article 44: sCMO

Market measures (1/2)

Milk quotas

Increase milk quotas by 1% annually from 2009 to 2013

Additional super levy for 2009 and 2010 (for overshoots higher than 6%) and adapted fat correction

Review clause in 2010 and 2012 to assess market developments and report on PDO cheeses

Abolish private storage for cheese and butter disposal aids

Cereals

Bread wheat intervention remains with no quantitative limits. Tendering system starting from quantities above 3 million tons

Quantitative ceilings set to zero for all coarse grains, durum wheat and rice

Rural Development

Address new and ongoing challenges: climate change, bio-energy, water scarcity, biodiversity, dairy accompanying measures and innovation related to the afore-mentioned priorities

More funding via an increase in compulsory and the introduction progressive modulation

Revision of National Strategy Plan and Rural Development Programs indicating how additional funds will be used in meeting the new challenges

University of Missouri, Brussels, 14 January 2009 Thresholds (in €) 2009 2010 2011 2012 1 to 5 000 0% 0% 0% 0% 5 000 to 300 000 2% 3% 4% 5% Above 300 000 6% 7% 8% 9%

What’s next (1)

Pillar I – direct payments

Decoupled

Level

Distribution between MS

Budget after 2013

What’s next (2)

Pillar II

Axis I, II, III

” New challenges” – climate change

Public goods - NL-paper Annecy September 2008

What’s next (3)

Market orientation. Dairy quotas

Safety net

Doha

EU – direction

US - direction

Pavel Vavra Agricultural Economist OECD

Global Trends in Commodity Markets

Agricultural Outlook - a set of conditional projections published in an OECD-FAO annual report

The datasets are available at www.agri-outlook.org

OECD-FAO Agricultural Outlook

1973 2008 Cereal prices in real terms, schematic Where are (were) prices going? Transitory factors, Long-term factors } 20-30%

Market turmoil – add hoc policies

Negative yield shocks – bad weather

Strong demand growth

Temporary – transitory factors

High crude oil prices

Feedstock demand for biofuel production

Longer term factors

Devaluation of US dollar

Low stock levels

Factors behind price rises

Growing demand for agricultural commodities P.a. average growth rate between 2008 and 2017

Food - Feed - Fuel fuelling demand for cereals Wheat Coarse grains

Crude oil price : 90-104 US $

World oil price assumed at higher levels

Change in world prices for 2017: Cumulative impacts of different scenarios

Strong ties of agriculture and energy

www.oecd.org/tad

Thank You [email_address]

Pat Westhoff Co-Director Food and Agricultural Policy Institute University of Missouri

Patrick Westhoff University of Missouri [email_address] Transatlantic Roundtable, Brussels January 14, 2009

Mar 08: $450 Nov 08: $237

WHY PRICES ROSE

Reduced grain production in Europe, Australia in 2007

Economic growth in Asia and elsewhere

Weaker dollar

Higher petroleum prices

Rapid biofuel expansion

Policy response

Speculation

WHY PRICES ROSE

Reduced grain production in Europe, Australia in 2007

Economic growth in Asia and elsewhere

Weaker dollar

Higher petroleum prices

Rapid biofuel expansion

Policy response

Speculation

WHY PRICES FELL

Sharp increase in global grain production in 2008

Financial crisis and world economic slowdown

Stronger dollar

Lower petroleum prices

Slower biofuel growth

Policy response

Speculation

CBOT maize futures, March 2009 contracts Jan. 9: $4.10/bushel ($161/ton) Jan. 13: $3.62/bushel ($143/ton), down 12% Dec. estimate by USDA Jan. estimate by USDA Comments 2008 maize production 305.3 mil. tons 307.4 mil. tons More area, higher yields than previous estimate 2008/09 U.S. maize for ethanol 94.0 mil. tons 91.4 mil. tons Lower fuel prices have closed some plants 2008/09 U.S. maize used for livestock feed 135.9 mil. tons 134.6 mil. tons Less meat demand due to weak economy 2008/09 U.S. maize exports 45.7 mil. tons 44.5 mil. tons Weak global economy slows trade Sep. 1, 2009 U.S. maize stocks 37.4 mil. tons 45.5 mil. tons More production, less use mean more stocks

Source: FAPRI preliminary baseline, Nov. 2008

Source: FAPRI preliminary baseline, Nov. 2008. Note: “Payment trigger” is price that would result in countercyclical payments.

Note: Net CCC outlays include spending on direct payments, marketing loans, countercyclical payments and other basic farm programs

Average Crop Revenue Election (ACRE) program created in 2008 Farm Bill

Makes payments if state-level revenues/hectare fall below a benchmark

Benchmark tied to prices from last 2 years, yields from last 5

If prices and yields do not fall, no payments occur

Payments could be large if prices fall, even if prices stay above levels that would result in “traditional” payments

Time of great market uncertainty

U.S. ACRE program could prove important

Potential large payments if commodity prices fall

Is program consistent with U.S. Doha proposal?

What will new U.S. administration do?

Seems unlikely that farm program changes will be on 2009 agenda

But could see changes if/when budget and trade concerns become important

Michel Petit Professor Institut Agronomique Méditerranéen (Montpellier)

CAP PROSPECTS Michel PETIT [email_address] Transatlantic Roundtable, Brussels January 14, 2009

INTRODUCTION

MY TASK :

Update on Health Check implications for future and especially directions of EU policy beyond 2013

TWO QUOTES :

CAP introduced short-term adjustments to respond to crisis before “Health Check”

“ Health Check” proposals aimed at fine-tuning the CAP reform process

PREDICTABILITY OF CAP REFORMS SINCE 1992

SUBSTANCE :

FROM PRICE SUPPORT TO DECOUPLED DIRECT PAYMENTS

INSTITUTIONAL ARRANGEMENT: KEY ROLE OF THE EUROPEAN COMMISSION

CAP expenditure and CAP reform path EU-10 EU-12 EU-15 EU-25 EU-27

INTERVENTION AS SAFETY NET

MAJOR UNCERTAINTIES FOR THE FUTURE

BUDGET FRAMEWORK:

TOWARD A NEW ALLIANCE

OF THE NET CONTRIBUTORS?

NEW ‘SOCIETAL CONCERNS’:

EUROPEAN MODEL

OF AGRICULTURE?

HOW TO COPE WITH PRICE VOLATILITY?

Neil Conklin President Farm Foundation

The Future of U.S. Agricultural Policy "Agricultural Policy in Transition: What's Next?" Brussels, Belgium January 14, 2009 Neil Conklin Farm Foundation

75 Years Ago

More than 20% of the workforce employed in production agriculture

Production agriculture’s share of GDP about 7 %

1933 Agricultural Adjustment Act—the first “Farm Bill”

Today

Less than 2% of workforce employed in production agriculture

Production agriculture’s share of GDP is less than 1%

Food Conservation and Energy Act of 2008

75 Years of Change

Growing Population

Rising Income

Policies Shaped by Abundance

The 30-Year Challenge

Farm Foundation project The 30 Year Challenge: Feeding and Fueling a Growing World

Conclusions:

With the right tools and incentives, the world’s agricultural producers and agribusinesses will rise to the challenge

Those incentives and tools are heavily influenced by public policy

Need to begin to build the framework to meet the challenges of the future

Six Challenges

Global financial markets and recession,

Global food security,

Global energy security,

Climate change,

Competition for natural resources, and

Global economic development

Themes from The 30-Year Challenge

Uncertainty,

Public understanding,

Unintended consequences,

Trade-offs,

Research and development,

Infrastructure,

Trade, and

The absence of a clear strategy for U.S. agriculture.

The Near-Term Imperatives

Financial Crisis and Recession

Interest rates

Exchange rates

Incomes and demand

Boom and Bust

Ethanol

Commodity Prices

Policy Responses???????

Prospects for Policy Transition

In response to what one of our participants in the 30-Year Challenge Project called a “generational opportunity” Farm Foundation undertook this effort to motivate the debate.

For More Information

Visit www.farmfoundation.org to find:

“ What’s Driving Food Prices”

“ The 30 Year Challenge, Feeding and Fueling a Growing World”

Willi Meyers Co-Director Food and Agriculture Policy Research Institute University of Missouri

Discussion Willi Meyers [email_address] Transatlantic Roundtable, Brussels January 14, 2009

Changing US Political Setting?

Changing EU Political Setting?

Changing Market Environment? Real U.S. Crop Farm Prices in year 2000 US dollars Source: January 08 FAPRI Baseline

Did we lose trust in MARKET INSTITUTIONS? ..said Thursday(Oct 23)that the current financial crisis had uncovered a flaw in how the free market system works that had shocked him.

Questions for future