Reforms of the Common Agricultural Policy and agriculture in Finland
JukkaKola
DepartmentofEconomics andManagement,POBox27,FIN-00014 UniversityofHelsinki,
Finland, e-mail:jukka.kola@helsinki.fi
This article examinessomepossible pathsand inherentpolitical economyofthefuture reformsof the
CommonAgricultural Policy (CAP) and theirimplicationsfor the Finnish agriculture. Scenario ap- proach isqualitatively applied in respect of twopolicy scenarios, theAgenda 2000reform proposals and the renationalisation of the CAP. In addition, the proposed European model ofagriculture is briefly compared with the farm sectorin the United States. Agenda 2000 isregarded as athreat scenario and the renationalisation of the CAP as a target scenario from the point of view of the Finnish agriculture intheEuropean Union.
Key words:Agenda 2000, European model ofagriculture, politicaleconomy, renationalisation, sce- nario
ntroduction
Agricultural policy is facing major changes in the 19905. Market orientation is increasing as administrative prices and border protection are lowered, quantitative restrictions on production are reduced, and production-related price sup- port is being replaced by decoupled direct(in- come)support.Therecentexamples of this trend
in the European Union (EU)are the reform of the Common Agricultural Policy (CAP)in 1992 and new CAP reform proposals in the Agenda 2000 of July 1997, and in the United States the Federal Agricultural Improvement and Reform (FAIR)Act of 1996-2002.
In spite ofanoverallattempttoreduce gov- ernmentintervention in agriculturalmarkets,reg- ulation is increasing inareassuch asfood safety and quality, genetic modification, agri-environ- mentalmeasures and animal welfare. More and more oftenafarmer will be eligible for certain aid only through provision of public goods and positive externalities. This development implies arather differentsetof policy instruments than has been typical for the history of agricultural policies, and the CAP in particular.
The needs for reform of the CAP have been assessed in the
1990 s in
two expert groups ap-pointed by the European Commision. The first 12-member group consisted of mainly agricul- tural economists andwaschaired by Arne Larsen
©Agricultural and Food ScienceinFinland ManuscriptreceivedJanuary 1998
(Commission 1994), whereas the second one, presided by AllanBuckwell, had a somewhat more multi-disciplinary composition with its nine members (Commission 1997a). Neither group had Finnishrepresentation, but e.g. Swe- den had arepresentative in both of them.
Policy studies commonly focuson either the reasons for the policy orthe effects of the poli- cy. The formerapproach usually employs polit- ical economy,orpublicchoice,models ofapos- itive framework (reviews by Swinnen and van der Zee 1993, Harvey 1997a)and the latternor- mative welfare economics models (reviews by Bullock etal. 1997,Kolaetal. 1997). Blandford (1996) classifies economists who follow the process of(agricultural) policy formation rough- ly into two categories: (a) those who find the process distasteful because it seemstohave lit- tle relationship toeconomic rationality, and (b) those who find the process interesting andtryto explain it. This paperrepresents the latter ap- proach of political economy, like e.g. Mahé and
Roe (1996) for the CAP and Paarlberg and Or- den(1996)for the US agricultural policy.
This article(i)identifies and discussessome of the possible future reform paths of the CAP and (ii) examines their implications and politi- cal economyaspects in Finland. Thenextchap- ter presents the scenario approach as a way to analyse future policy paths. Two specific policy scenarios are discussed in the following chap- ter, in which the European and US models of agriculture are also compared. In the conclud- ing chapter, alternatives for thecurrentCAPare evaluated from the point of view of the Finnish agriculture and its future possibilities.
Scenario approach for political economy studies of agricultural policy
Scenario approach has, especially since the 1980
s,
become an important sub-section in the futures research, which, in turn,has been prac-deed in its modern form during about the last 30-40 years (see e.g. Vapaavuori 1993). Man- nermaa(1993)divides the futures research into three approaches: descriptive research, evolu- tionary research and a scenario paradigm.
Schwartz (1998, p. 4) defines scenarioas atool for ordering one’s perceptions about alternative future environments in which one’s decisions might be playedout.Scenario planning is about making choices today withan understanding of how they mightturn out tomorrow.Scenarioscan be regarded as images about the way the world mightturn outin thefuture,including conceiva- ble future surroundings of the social and/oreco- nomic entity in question. These imagescanhelp decision-makers recognise and adaptto chang- ing aspects of thepresentenvironment (of soci- ety, economy, industries, agriculture,etc.) in a world ofgreat uncertainty.Hence, the scenario approach has the potential toincrease the rele- vance of scientific studiestopolicy-makers.
Often policy analysis isex-post. Planning of policy reforms, however, calls forex-anteeval- uation of the expected effects of policy instru- ments. Actual research onfuture developments is always verydifficult; thereare nodata availa- ble and therearemany unknown factors. Instead of trying tofind ways toremove orreduce this inevitable uncertainty, scenarios can be em- ployed to study the future developments with foresight, rather than by means of traditional forecasts orprojections ofpast developments (Hamsvoort and Rutten 1996).
Concerning its applications, scenario ap- proach has its origins in the US military circles, and it has then been popularised by large indus- trial organisations in their strategic planning.
Hamsvoort and Rutten (1996) pointoutthatsce- nario approach has also become popular in pub- lic administration. In agricultural economics this approach is still seldom applied, although its ability to deal with future uncertainty should have beenanessential advantage in e.g. agricul- tural policy studies. Groot etal. (1994), Ham- svoort and Rutten (1996), Paarlberg and Orden (1996) and Wennerholm(1996) are rare exam- ples of scenario applications in agriculture, agri-
182
business and related policy. InFinland, Parviai- nen(1998) has applied acombination ofaDelphi technique andaBasics PC program ofthecross- impact analysis in aregional agricultural policy study to construct a set of scenarios describing alternatives for ecologically sustainable agricul- ture and appropriate agricultural policies.
Eventually,animportantpart ofany planning is that new, essential knowledge is developed well in advance before the final decision has to be made.Often, shortorintermediate-run plan- ning, i.e., upto5-year interval, canrely on so- called internal expertiseof, say, a firm, under- pinned by existent historical data and conven- tional analyses of e.g. market, economic, and demographic trends in certain regions. Flowev- er,asthe planning span is extendedtocover more than 5 years, many more,and often also more external and complicated, factors havetobe tak- enintoaccount.These factorscan be, forexam- ple, changes in general values, technological development, exchange rate fluctuations, inter- national competition and political development.
Thus, planning and decision-making become much morecomplicated and difficult dueto in- creasing incomplete and asymmetric information and uncertainty. Scenario approach is one way
todeal with this situation by studying and com- bining different trends and driving forces in a systematic way in an attemptto forma holistic view of the future. Driving forcesarethepoten- tial forces that could cause acertain practice to change. They usually fall into five major cate- gories; society, technology, economics,politics and environment(Schwartz 1998, p. 105-106).
Scenarios can be constructed in different ways,dependingon the situation and the objec- tive of the study. Scenarios areoften created by making asurvey among some expertsand deci- sion-makers in a certain field and integrating their views into scenarios. In addition, the aim is oftento construct‘extreme enough’ scenarios along withabasic and/or trend scenario.Here, the focus is onpolicy scenarios, which canbe regarded asrepresenting oneof the largercate- gories of scenarios (Hamsvoort and Rutten
1996), others being, for example, technical and
socialscenarios, threatorconflictscenarios, sur- prise or non-surprise scenarios, as well as the most likely scenario and the normative scenar- io.
Policy scenarios
The policy scenariosarehere specified inrespect of the possible future development of the CAP.
Identification of the driving forces is important, for they will influence and determine the CAP and the ‘frames’for,interalia,theamount,form and allocation of the spending from the Europe- an Agricultural Guarantee and Guidance Fund
(EAGGF)in the future. The following scenarios canbe constructed:
1. Current CAP. The CAP and the prevailing trends in all key factors and variables affect- ing itareassumedtocontinue largely asbe- fore, without major external (e.g. WTO) or internal (e.g. EU budget orstock-piling) pres-
sures.The driving force is mainly ofapolit- ical nature, i.e. thestatus quo preference of decision-makers.
2. Agenda 2000. This scenario is mainly driven by economic and politicalforces,both inter- national and domestic, including regional interests in the EU. The CAP needs to re-
spondto(a)world market developments, in- cluding the trade liberalisationprocess of the GATT/WTO and US farm policy develop- ments, (b) Eastern enlargement of the EU and (c)budgetconstraints,especially in associa- tion with Eastern enlargement, indicating di- minishing funds for traditional EAGGF ob- jectives and possibly also for old member states.
3. Renationalisation
of
the CAP. The driving force here is both political and social in its nature. It is the recognition and acceptance of thestrong differences between themem- ber statesand their agriculture. Emphasis is on the subsidiarity principle and balanced development in the agriculturalsectorsof thedifferent EU memberstates.In addition, an economicaswellaspolitical driving force is the willingness of some EU member states toeven outEU budget contributions.
From the point of view of the EU adminis- tration(Commission), the scenariosmost likely represent the background scenario(1), target scenario (2), and extreme scenario (3). For Fin- land, it is argued and analysed here that they constitute abackground (1), a threat (2), and a target (3) scenario. To argue that the third is a targetscenario for Finland implies that renation- alisation is consideredtobe a morebeneficial alternative for Finland and its agriculture than Agenda 2000. The first scenario is regarded as a non-option and isnotelaborated anyfurther,but the latter two scenarios are discussed more in detail in thenext twochapters.
Agenda 2000 and political economy
After the 1992 CAPreform, often deemed as insufficient and partial in its scope as well as unfair in the distribution of programme benefits (Commission 1994, Kola 1996, Mahé and Roe 1996),EU agriculture commissionerFranz Fisch- ler’s Strategy Paper tried to identify the main challenges for the future of agricultural policies in theEU, also in terms of the Eastern enlarge- ment (Commission 1995).The three options evaluated in the paperwere: (1) statusquo, (2) radical reform and(3) further development and deepening of the 1992 CAP reform. The Com- missionwasin favour of option 3, assuming that it would leadtohigher competitiveness, integrat- ed rural policy and simplification of theCAP, as wellas alleviation of the Eastern enlargement.
The Fischler paper concluded that “Conceptual- ising this approach and elaborating the right policy instruments to implement it efficiently will be amajor task of the coming years, if this option is retained”.
The third option was retained, indeed, in Agenda 2000 presented in July 1997 by the Eu-
ropean Commission (Commission
1997
b). Ac-cording to the Agenda, the prices of cereals would be dropped by 20% in 2000, the price of milk would be lowered gradually by 10% be- tween 2000 and 2005, and the price of beef by 30% between 2000 and 2002. In the revised pro- posals of March 1998, the milk price cut was increased to 15%to take place in four phases during 2000-2003. Price reductions would be compensated- but only partly (about 50-60%)
- through directsupport accordingtothe same general principles as in the 1992 CAP reform, including arable area payments and premiums for dairycows as well asbeef cattle. Set-aside would be retained as an instrument in reserve, but itspercentage will be lowered tozero. Milk quotas will be maintained until 2006, but the Commission also indicates that the quota sys- tem will not continue forever.
Ceilingsonoverallamountsand differentia- tion,i.e. themodulation,of aid per farmarealso mentioned, but detailson the modulation crite- ria are still missing in the Agenda 2000 propos- als, also inrespect of whether such ceilings or differentiation should take place atthe level of the Communityorindividual memberstates.The Agenda 2000 suggests a 20% cut on payments ofover 100 000 ECU and 25% of those over 200 000ECU, whereas the USA imposedasub- sidy ceiling of$4O000 per farm in the FAIR Act.
The Agenda 2000 also proposesareorganisation of the existing rural policy instruments andem- phasises the prominent role of agri-environmen- tal instruments to support a sustainable devel- opment of ruralareas and respond tothe socie- ty’s increasing demand for environmentalserv- ices (Commission 1997b, p. 32-33).
The Commission estimated in late 1997 that Agenda proposals willcostanadditional22 bil- lion ECUover6 years when compared with pur- suinganunmodified CAP. The growth is mainly duetoincreasingcompensatory payments.About 15 billion ECU of the additionalcostis allocated
to the beef regime and 10 billionto the dairy regime, while arable spending is estimatedtobe reduced by about4 billion ECUover6 years.In 1998, the EU spends 40.4 billion ECUon agri-
culture,which is 45% of the entire annual EU budget.
The final decisionson the Agenda 2000 and its CAP reform proposals are expected to be made in 1999. In a preliminary phase, all EU farmministers, exceptSpain,approved the Com- mission’s proposals in the November 1997 Coun- cil meeting, but they didnot,however, agreeon every detail of theAgenda 2000 proposals con- cerning the CAP.
France, as the leading agricultural producer in theEU,has consistently reserved clear judge- menton a number of key issues in the Agenda, preliminary commentsvarying accordingto the product regime and its importance toFrench agriculture. Because agriculture is ‘an affair of state’ for France (Lueschen 1995), it has often delayed important agriculturaldecisions,both in the EU and internationally, e.g. during thecrea- tion of the CAP in the early
1960 s and
the GATTUruguay Round trade negotiations (Tracy 1989, Lueschen 1995). Germany is also acting cau-
tiously, but also very defensively, atleast until the parliamentary elections in September 1998, for farmers still have pivotal voting power at margin in national politics, concerning especially the Christian Democratic Party and farmers in Bavaria. Germanyseemstobe closetothe posi- tion of the COPA (Comité des Organisations Professionnelles Agricoles), aBrussels-based lobby for EU farmers. The power balance be- tweenFrance, the leading agricultural power, and Germany, the major net contributor to the EU budget, is important in the CAP decisions.
Memberstatepositionsonthe July 1997 CAP reform proposals of the Agenda 2000 are fur- ther elaborated in e.g. Chambres d’Agriculture (1997), and the reactions toJuly 1997 and March 1998 proposals are listed in several issues of Agra Europe Weekly. Intermsof these positions and reactions, it is useful tolookatsomebasic data, concerning notonly agriculture(Table 1), but also food industry and trade (Table 2), be- cause the position of the European food indus- try is very important in policy-making in terms of the EU’s competitiveness onthe global mar- ket. Strongexporterslike Denmark and the Neth-
erlands (Table 2) oftensupportthearguments of the food industry lobbies for less government intervention in e.g. supply management.The UK and Sweden have less significant agricultural sectorsandexportshares in the nationalcontext (Tables 1 and 2),and they, especially the UKas a traditional keen supporter ofa more radical reform(MAFF 1995),would liketo seestill low- erprices and support and immediate abolition ofquotas. In the other end of thespectrum are the countries with relatively large agricultural labourforce, and often also less-favoured agri- culturalconditions,like themostsouthernmem- ber states and Austria and Finland (Table 1).
These countries usually prefer milder CAP re- forms, together with Germany, and emphasise rural development aspects. Austria, Finland and Sweden also sharesomeinterests in environmen- tal and animal welfare factors.
European and US models of agriculture
Agenda 2000 proposals have generated the dis- cussion on the future direction of the European agriculture. Comparisonsarebeing made espe- ciallytotherecent developments in the US agri- culture,the USA being the majorcounterpartin trade issues. COPA opposed immediately and strongly several aspects of the Agenda propos- als, indicating that they would have very dam- aging consequences for the future of farmers and their co-operatives, employment in agriculture and the many relatedsectors, aswellasthe via- bility of vast rural areas throughout the EU (COPA 1997a).
COPA’s counter-proposals have been tiedto theconcept ofaEuropean Model ofAgriculture (EMA), which many defensive member states have then referredtointerms of the Agenda. In ordertodevelop theEMA,proposals for reform should aim, inter alia, at (1) guaranteeing an increase in farm incomes comparable to those of other socio-professional categories, (2) allow- ing European agriculturetocontinuetofulfil its multi-functional role (a) as a main world pro- ducer of healthy and high-quality agricultural
Table 1.Basic characteristics ofagriculture inthe EU countriesin 1995.
Utilised Average Number Employment inagr., Sharein Sharein agr.area farmsize, of farms, forestryand fisheries EU-15 Gross
(UAA)% ha/farm in 1000 sharein production Domestic
of the thousands persons totalem- value. Product
total area ployment% % GDP,%
Belgium 45 18.8 71.0 102 2.7 3.3 1.3
Denmark 63 39.6 68.8 114 4.4 3.3 2.6
Germany 48 30.3 566.9 1197 3.3 15.7 0.8
Greece 44 4.5 773.8 780 20.4 4.1 7.3
Spain 50 19.7 1277.6 1119 9.3 11.3 3.0
France 56 38.5 734.8 1080 4.9 22.0 2.0
Ireland 63 28.2 153.4 140 11.1 2.1 4.8
Italy 57 5.9 2482.1 1489 7.5 15.1 2.7
Luxemb. 50 39.7 3.2 6 3.7 0.1 0.9
Netherl. 48 17.7 113.2 243 3.7 8.3 2.9
Portugal 43 8.7 450.6 507 11.5 1.7 2.0
UK 65 70.1 234.6 533 2.1 8.8 1.0
Austria 41 15.4 221.8 267 7.3 1.8 1.1
Finland 8 21.7 101.0 156 7.7 1.1 1.1
Sweden 8 34.5 88.8 124 3.0 1.5 0.4
EU-15 42 17.5 7341.5 7857 5.3 100 1.7
USA 47 206.7 2073 3084 2.3 1.8
Japan 14 1.4 3724 3633 6.4 1.6
Sources:Yearbook of Farm Statistics 1997, Finland;Commission1997c.
Table2.Basic characteristics of foodindustryand trade ofagriculturaland foodproducts inthe EU countriesin 1995.
Prod- Share Sharein Employ- Sharein Sharein Trade of uction inEU national mentin the EU national agriculturaland
value pro- indust- food food industrial foodproducts
mill. duction rial industry industry employment
ECU % prod., (1000) employ- % %of total
% ment% imports exports
Belgium 17 053 3.5 17 66 2.6 11 12.9 11.9
Denmark 14 100 2.9 28 64 2.5 20 15.8 28.1
Germany 110 943 22.5 11 545 21.0 8 11.5 5.7
Greece 5 187 1,1 27 45 1.7 20 17.9 33.1
Spain 48 722 9.9 20 365 14.1 17 15.6 15.8
France 93 239 18.9 17 352 13.6 11 11.4 14.5
Ireland 14 104 2.9 37 47 1.8 22 9.8 20.3
Italy 50 690 10.3 12 203 7.8 8 15.3 7.1
Luxemb. 369 0.1 7 2 0.1 7 12.9 11.9
Netherl. 32 978 6.7 24 111 4.3 16 15.1 22.8
Austria 12 149 2.5 11 57 2.2 8 8.2 6.5
Portugal 7 925 1.6 18 106 4.1 13 16.5 8.3
Finland 7 198 1.5 12 39 1.5 11 8.6 7.8
Sweden 10 192 2.1 II 60 2.3 11 7.9 5.8
UK 67 273 13.7 16 526 20.3 14 11.4 7.3
EU-15 492 122 100.0 15 2588 1000 I_LB 8.2
Sources;Commission1997c,SOU 1997.
186
products and (b) in forming the backbone ofru- ral regions for e.g. employment and environmen- tal protection, (3) promoting continued improve- ments in the structures and efficiency in agri- culture,(4) reinforcing specificmeasurestoben- efit less favoured areas,(5) reinforcing econom- ic and social cohesionto help safeguard agricul-
ture in all regions of theEU, and (6) maintain- ing European identity by highlighting the role of agriculture in the society and applying this as the basis of the European position in the forth- coming WTO negotiations (COPA 1997b).The
core of the EMA would bearesponsible family farm with flexibility in variousaspects, the word
‘responsible’ implying responsiveness to the quality, ecological, ethical and social needs of the European citizen/consumer. COPAseesEMA in the middle-way between total opposition to any change whatsoever and unconditional ac- ceptance and application of free trade and new technologies.
Theconceptand persistence ofafamily farm is one of the mostinteresting and complicated issues in the discipline of agricultural econom- ics. Theconcept‘family farm’assuch is ambig- uous. Definitions may refer to e.g. the size of the farm, employment requirements (full-time andpart- time, or own labour only and hired la- bour), ownership and management (owner-op- eratorsor managers) and succession of genera- tions. The advantages of family farm organisa- tion often include e.g. flexibility and stability (contributing to e.g. food security), high work ethic,and smooth intrafamily transfers of prop- ertyandmanagement. It has also beena sortof a way ofliving, which is now often seen as a disadvantage of the type ofanenterprise that a farm should alsobe,with normal economic prin- ciples. The persistence of(smaller) family farms has beenrelated, especially by Schmitt (1989, 1992), tothe low transactioncosts:afamily farm is flexibletoorganise and it is easytomotivate people in the family enterprise,overthe genera- tions. This transaction-based efficiency view of family farming is also questioned, for example by Ahearn (1992)and Boehlje(1992).
Sociologicalfamily firm model isoneof the
five alternative models of structural change in agriculture and related industries Boehlje (1992) presents and evaluates. He lists nine attributes that might be used to evaluate family as com- pared to corporate and owner-operator versus tenant-landlord ways of organising farming, and concludes that family farming hasa clear pref- erence in only oneof theseattributes, i.e. inde- pendence and control of one’s future.
Boehlje’s analyses take ustotheroots ofan American model of agriculture(AMA). Boehlje (1995) describes how changes in the character- istics of agriculture and the economic climate for farm and agribusiness firms,combined with new conceptsofmanagementand strategic think- ing, have changed themanagement ofsuccess- ful farms and agribusiness toacustomer driven business with differentiatedraw materials and emphasising so-called softassets(people, organ- isation, plans and information) as the prime sourceof strategic competitive advantageaswell aspower and control.
Similarly,agricultural policy has been chang- ing (Table 3) and responding tothe changes tak- ing place onfarms and in agribusiness.Hence, policy seems tobe reactive rather than proac- tive, and many of the policy changes, according toBoehlje, may be more in perception than in reality. Tweeten and Zulauf(1997) presentthe differences between the old and newparadigm for public policy toward agriculture, defining the paradigm interms of its central economiccon- cepts, underlyingbeliefs,political situation and resulting policy prescriptions (Table 4).
In the old paradigm, the central economic conceptof agriculture in chronic economic dis- equilibriumwas viewedasthe result of (1) rap- id technological advances increasingoutputand savinglabour, (2) slowly increasingdemand,and (3) cyclical demand acting on anindustry char- acterised by limited abilityto adjust. Incontrast, the newparadigm views the agricultural sector as near long-term economic equilibrium, and there is noneed for continuous government in- tervention for US commercial farms(sales more than$lOO000ayear) large enoughtoearn rates ofreturns on resources comparable to rates of
Table3. Changes inthe operational environment of agricultural policy (Boehlje 1995).
OLD CONCEPT agricultureisfarming
family farmingandasmall business unstablesupply (primarilydomestic) domestic marketareprimemarkets
consumersfearhighfood costs and food shortages consumersbelieve their food is safe
significant political influence (of farmers) adequate budgetfunds foragriculture farm incomemeasureseconomicwell-being farmers havehighermoralstandards, astrong work ethic andgenerally highervalues economicwell-beingofrural communities dependsupon farming
NEWCONCEPT
agriculture is the foodproductionand distribution system industrialised/corporate agriculture
morestablesupply(world-wideproduction) foreignand industrial marketsarecritical markets food costsare adecreasingpart of theconsumers' budget and world-widesourcingreduces the prospects ofshortage consumersquestionthesafetyof their food
limitedpoliticalinfluence
budgetdeficits and reduced fundingforagriculture farm household incomemeasureseconomicwell-being farmersare nodifferentintermsof moralstandards, work ethic and values
economicwell-beingof rural communities dependsmore onnon-farmactivity
Table4.Oldandnewpublic policy paradigmfor agriculture (Tweeten and Zulauf 1997).
OLD PARADIGM NEWPARADIGM
Centraleconomic concepts
Economicdisequilibrium Approximate long-termeconomic equilibrium
-excessproduction capacity -economicefficiency
-excesslabour -importanceof off-farm income
- low rates of return
Underlyingbeliefs
Farm fundamentalism Democraticcapitalism
Agricultureas family-farmway of life Agricultureas asuccessful familybusiness
Market failure Governmentfailure
Political situation
Pivotal votingpower atmargin Increased relianceonmonetarycampaign contributions and direct contacts with members ofCongressand the executive branch Policy prescriptions
Agricultural policy emphasising Publicpolicyforagriculture emphasising
commodityprogrammes marketefficiency
- supplycontrol - removingmarket barriers
-government payments tied to - providing public goodsandinternalising
production base externalities
-stockadjustments - promotingeconomic equity with safety net
-foodsecurity throughgovernment - foodsecurity through private sector
returnselsewhere. These commercial farmsac- count for 1/5 of farms but 4/5 of farm market- ings.However, asthe off-farm income becomes moreandmoreimportant onUSfarms,Tweeten and Zulauf pointoutthat,for commercialfarms, farm income is still the main source of family income. This fact also holds for full-time family farms in theEU,having certain implications for the rural viability issues.
The trends presented by Boehlje (1995)and Tweeten and Zulauf (1997) emphasise the in- creasing marketorientation, commercialisation, and industrialisation together with inherentver- tical coordination in the US agriculture. Indus- trialisation in agriculture can be definedas the increasing consolidation of farms accompanied by increasing vertical integration among the stagesin the productionsystemthroughcontract- ing and integration, all driven by changes incon- sumer demand, production technology and in- ternational competitive pressures(Offutt 1996).
Thismeansthat traditional family farming is dis- appearing and large-scale, systematised corpo- ratebusiness patternis also taking an everlarg- er partof the US agribusiness. Moreover, Tweet- enand Zulauf(1997)maintain that commercial farming has moved beyond industrialisation to the post-industrial era of service industries and occupations emphasising informationsystems, finance, insurance, managementand marketing.
Theyseethat the post-industrialeraofadvanced science, high technology and specialised man- agement calls forgreaterprivate and public in-
vestmentin humanresource development.
However,despite thesenewdevelopments it seems that farmers have not lost their unique- ness as such,not even in the US(in contrast to Boehlje’s argument “farmers are no different from therest of society” in Table 2). Drury and Tweeten (1997) found out that, compared with the general US population, the farm family pos- sesses valued moral and cultural traits and is more stable,and the typical farmer ismorereli- gious, politically more conservative and happi- er.Farmers were also foundtobemore satisfied with their jobs, which appears tobe a function of self-employment(seealso Boehlje 1992; in-
dependence and control of one’s future). So, it seems thatafamily farm is prized moreby the society than by the market. These areprobably the principleson which the European model of agriculture is proposed to be built. This is not economic reasoning, but if the society perceives family farming positively, it is likely to affect political decision-makers and, consequently, agricultural (andrural)policy.
Thenew US farmbill, the FAIR Act, for the years 1996-2002 does not emphasise family farming and commonly inherentrequirements for government support and interventions in order tomaintain it. As Tweeten and Zulauf (1997)put it: “The FAIR Act of 1996 opted for the market instead of thegovernment toallocateresources andset returnsin agriculture”. In theEU,Agen- da2000 is only partially moving to this direc- tion as production quotas are maintained, and stronger rural emphasis, atleast implicitly, is added.
The newfarm bill process began as a con- ventional battleoverthe budgetary costofcom- modity programmes, but in the end the FAIR Act provided thegreatest change in the US agricul- tural policy since theirstartin 1933 (Knutsonet al. 1997, p. 280). In jargon, the right economic circumstances (high market prices for field crops) and the right political circumstances (budgetcuts, agricultural policy leadership and Republican Party control of both the House and Senate in 1995-96) helped to make this policy change possible and acceptable, also among the farm lobby(Zulaufetal. 1996,Ordenetal. 1996, Knutson etal. 1997).
Johnson (1996) belittles the changes of the Act by referring to Shakespeare: “Much ado about nothing”. Although the budgetwasnotthe key issue (Paarlberg and Orden 1996), itwasstill importantand, therefore, it is worth noting that thecompensatoryproduction flexibility contract (PFC)paymentsrequired almost 1/3more mon- eyin 1996 than was thesum of deficiency pay- ments in 1995 in the old farm bill ($5.3 vs.
$4.0billion). Whether these decoupled and de- clining PFCpaymentsfromtaxpayerstoproduc- ers will end in 2002ornot will still be aques-
tion of$4billion for the next farm bill debate.
Budget problems occurred in the EU’s 1992 CAP reformas well,andwereworsened by theover- compensationto crop farmersasfixedareapay- mentsfully compensated the institutional price drops, but market prices didnotfall correspond- ingly (Commission 1997a).Moreover, there is
no ceiling on subsidies per farm in the EU, thoughnow cautiously proposed in the Agenda 2000, whereas in the US FAIR Act the ceiling was set at arelatively low level, S4OOOO per farm.
The US, with their FAIR Act of clearer di- rect, decoupled incomesupport (PEC payments) than the CAP compensatory payments will put pressure on the EU in terms of the next WTO round of trade negotiations plannedto start in 1999, concerning e.g. the so-called greenbox and blue box support measures in the GATT/WTO (see Commission 1996).Thus,in additiontoin- ternal EU issues like Eastern enlargement and budget framework of 2000-2006, the driving forces behind the European Commission’s Agen- da2000 proposals arealso clear external pres- sures,in asimilarmanner asthey alsoweredur- ing the 1992 CAP reform due to the then on- going trade negotiations in the GATT Uruguay Round of 1986-1993. To define and establish the European model of agriculture will notbe easy in these circumstances.
Renationalisation of the CAP
The CAP is not able to deal with diverse farm sectorsand production conditions of all 15 dif- ferent EU memberstates.Thecommon agricul- tural policy isnot‘common’ enough (Kola 1996).
Problems of the CAP also include the distortion that 20% of farmers with the largest and most intensive farms in the most-favoured agricultur- al regions in the EU have received 80% of the CAP subsidies(Commission 1994, p. 27).Nei- ther 1992 CAP reformnorAgenda 2000 propos- als attack this problem.
In the thirdscenario, renationalised agricul- tural policy(RAP),morebalanced policy actions
andsupportallocationareassumed between less- favoured and most-favoured agricultural regions.
Hence,the goal is the better targeting of policy measuresandsupportthrough the application of the subsidiarity principle also in agricultural policy. The constitutionalprinciples of the Com-
munityare:(i) fair competition,(ii) subsidiarity and (iii)consensus.Inrespectof subsidiarity, the problem is that theCAP,unlike the EUstructur-
al policy, belongsto the exclusive competence of the Community. National policy measures should also be in conformity with the principle of fair competition. In general, spatially differ- entiated policy responsesare needed, especially if environmental protection and rural develop- mentbecome more important rationales for ag- ricultural policy. Hence,the RAP could also be regionalised agricultural policy.
Kjeldahl and Tracy (1994) and Kola (1996) aretwo examples of the few studies discussing the renationalisation issue. In addition, Harvey (1997b, p. 426-427) concludes that his new framework foraneffective and efficient agricul- tural policy mix for the EU implies “a consider- able element of ‘renationalisation’ of theCAP, in thesensethat socio-political decisions onthe appropriate levels and mechanisms for the de- livery of farmsupportshould be devolved from Brusselstothe memberstatesand regionally dif- ferentiated within memberstates”. The Econo- mist(1997)magazine spread the ideamorewide- ly by advocating that national governments should mainly subsidise their farmers them- selves,instead of the EU budget and the bureau- cratic, inefficient circulation of money through Brussels. The latter point is also important due totheunevenEUnetbudget contributions,agri- cultural spending taking about 50% of the bud- getin the 19905. For alongertime,Germany, and the Netherlandsmorerecently, have pointedout this imbalance very clearly. Similarly, there are imbalances in the allocation of EAGGF expend- iture if analysed atthe farm level (Table 5).
Renationalisation of the CAP is opposed by theEU, for it would (1) distort common mar- kets, (2) break themost integrated Community policy, and (3) harm poorer memberstates with
190
the removal ofcommon financing. In addition, asRitson (1997, p. 2) points out, the three fun- damental principles of the CAP, including the commonfinancing,must notbe called into ques- tion in any reform of the CAP. More recently, the European Commission has excluded rena- tionalisation in Agenda 2000 (Commission
1997b, p. 32) in association to (the very brief) discussion on differentiation and ceilings, i.e.
modulation for directpayments,butwould,how- ever, allow memberstates tointroduce differen- tiation criteria according to commonly agreed rules. COPA also regards renationalisation as
“quite unacceptable”,atleast ifit jeopardises the existence of certain agricultural sectors in cer- tain regions (COPA 1997
a,
p. 3).But renationalisation needs not do any of these. Firstly, it should be easy to require and control that national policy instruments would
notbe trade-distorting (e.g. via full de-coupling).
The normal operation of the Single European Market (SEM) takes careof the price levels in anycase, and, as a whole, the CAP has notpro- vided same, common agricultural prices in all member statesduetothe peculiarities andcom- plexities of the agri-monetary system. Second- ly, there is no need to preserve, in economic terms,an inefficientand, in social and political terms,anunequitable policy unabletoreflect the diversity ofmemberstates,however ‘integrated’
this may be. Thirdly, poorer member states receive substantial funding via ever-increasing EU structural and cohesion funds. They, asall member states, could also receive a minimum level of EU-financed income supportfor farm- ers in the RAP. The primary responsibility for the implementation ofincome, structural,region- al or social policies could be left on member states (see also Commission 1994),whereas it would be important in theRAP, too, to have a common framework for agri-environmental is- sues aswellasquality and safetyaspectsof food products, including production ethics, animal welfare and veterinary aspects of agricultural production, in the entire EU. Renationalisation ofa certain degree does not mean a complete abolishment of the CAP. A lower degree ofre-
Table 5.EU EAGGF support andagriculturalincomesin Member Statesin 1995-1996.
Member state EAGGF support. Agricultural guarantee section incomes total, per farm (1), index:
mill.ECU ECU 1989-91=100
1996 1996 1995
1 152 16 225 88.8
1 358 19 738 115.1 6 050 10 672 123.9
2 801 3 620 100.7
4 054 3 173 116.2
9 572 13 027 115.9
1 700 11 082 127.2
4 231 1 705 107.8
20 6 250 93.8
1 536 13 569 86.7
France Ireland Italy Luxembourg Netherlands
Portugal 646 1 434 98.5
3 470 14 791 133.7
1 214 5 473 115.8
UK Austria Finland Sweden
649 6 426 82.4
624 7 027 88.5
(1) farm numbers from 1995,see Table 1.
Source: Commission 1997aand 1997c.
nationalisation, so-called regionalisation of the CAP is reflected in the proposals of the agricul- tural policy group(MMM 1996,p. 106):the of- ficial key issue for Finland is that thepermanent competitive disadvantage of the Finnish agricul- ture,duetoher naturalconditions,hastobecom- pensated by the CAP measures.
The 100% renationalisation is unlikely and politically unfeasible for the time being. Yet, renationalisation ofa lower degree and the sim- plification of the CAP should be aspired for. For simplification, and stability, there could be a fixedamountof money for several yearstomem- ber states from the EU budget. This money
should be basedon clear criteria taking intoac- countcertain special, meaningful characteristics of the memberstates,i.e. the characteristics that make them eligible for agricultural assistance.
Applicable criteria include, interalia, the fol- lowing factors: (1)unfavourable natural condi- tions (e.g. in Finland a short growing season) Belgium
Denmark Germany Greece Spain
leading tohigh productioncosts,(2) farmstruc- ture, (3) the disparity between agricultural and non-agriculturalincomes, (4)extentof ruralre- gions and the role of agriculturewithin, (5) al- ternatives for other economic activities in cur- rently agriculture-dominating regions, (6) pro- vision of CARE goods(Conservation,Amenity, Recreational, and Environmental) by agriculture, and (7) the share of agriculture in nationalem- ployment and gross domestic product (GDP).
These criteria aimat reflecting the actual need forsupportand distributive equity consid- erations. They are clearly different,and proba- bly also more complicated, than those of Har- vey’s (1997b,p.427)ashe proposes that the dis- tribution of the total EU supportbetweenmem- ber states should be determinedon the basis of base level production shares. This wouldnotal- leviate the serious equity problems of the CAP.
One of the fundamental questions in the CAP is whether directpaymentswill be aid duetosome special reasonsmaking recipient countries/farms eligible for public support, orwill they remain as traditionalcompensatory paymentsfor farm income losses. Mahé and Roe(1996)argue that a major challenge is a redesign of direct pay- ments tomake them clearly decoupled from pro- duction and moretiedtorural goods, the princi- ple of subsidiarity favouring this attempt. The rural aspect is further elaborated and strongly favoured by the so-calledBuckwell reportintro- ducing CARPE, the Common Agricultural and Rural Policy for Europe (Commission 1997a).
However, as the CAP as such is incapable of dealing with the diverse problems of the mem- berstates,the development towards the CARPE appearsas alost battle before it even started.
The renationalisationaspecthere is that the memberstatescouldusethe money from the EU budget, and their possible national, additional financing, as they considerbest, in conformity with the relevant regulations of theEU, mainly in terms of agriculture, common markets, and competition policy. The total spendingonagri- culture could be reduced, better targeted, and morepredictable. Better predictability was evi- dently one of the major achievements in the US
FAIR Actasfixed directpayments replaced an- nually volatile deficiencypayments(Knutson et al. 1997, p. 278).
Conclusions: Finland and the evolution of the CAP
The Agenda 2000 CAP reform proposalsarenot goingtobe beneficial for Finlandasthey, in gen- eral, imply tougher competition in the Single European Marketaswellasfrom third countries.
Because of the high productioncosts, bringing the producer prices closerto the world market prices is more difficult for the Finnish agricul- turethan for any other EU country. It should be in the benefit of Finland toemphasise the mod- ulation scheme(a ceiling for subsidies per farm) and,in general, better justification of theuseand allocation ofCAP support,especially the arable area payments tied toregional reference yields and the less favouredareas(LFA) support.These would all reduce CAP spending. Inequity prob- lemsseem toremain, however, asAgenda 2000 doesnotrevise the criteria for thearea payments and proposes torestore the support for silage maize, whichcannot be grown in Finland, to compensate for income losses due to the addi- tional milk price cut.
Consequently, Finland is demanding sepa- rate,country-specific measures,financed total- ly by theEU, toalleviate these problems. This will not be an easy task, bearing in mind the Accession Treaty of Finland(Kettunen and Nie- mi 1994), in which the financial responsibility for country-specificmeasures(e.g. northern sup- portand supportfor remaining serious difficul- ties, article 141)was entirely left on Finland herself. More difficulties ariseasother countries follow Finland with their special problems. In these conditions, stronger renationalisation would be anapplicable direction for Finland in orderto create an agricultural policy sensitive enough to country-specific needs. It could be
argued that themoredifferenta country is from the average agriculture of the EUcountries, the more difficult it is for it totake anequal advan- tageof theCAP,and themorebeneficial the RAP would be for that country. How beneficial it would be for the farm sector would, ofcourse, dependon the domestic political and economic situation.
Concerning thepolitical economy of Agen- da2000 proposals, the positions of the member states dependon, interalia, (a) how significant the farm sector is in the national economy and employment,and, in particular, in rural regions, (b) how significant role farmers play in thena- tional politics, (c) whether the emphasis is on exportorientation and competitiveness orenvi- ronmental and animal welfare factors, (d) how
much EU farm support they receive from the EAGGF, and(e) whether they arenet contribu- tors to orbeneficiaries from the EU budget, and how this relation is expected tochange withre- gard tothe Eastern enlargement. The views of France and Germany are decisive in the CAP reform issues. Finland, in turn, could make an attempt to influence the Agenda proposals by finding memberstateswilling to sharecommon interests and reform arguments.Besides the al- teration of the CAP support criteria, the quality and safety of foodstuffs and the ecological and ethicalaspects ofagricultural productionare top- ics that Finland should emphasise in the name of the competitive advantage of the national as well as entire EU agriculture and the European model of agriculture.
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