Monday, October 10, 2005

Turkey and the CAP

Turkish accession to the European Union would pose formidable problems for the CAP. These arise from the very large numbers of people employed on the land in Turkey, often engaged in very low value added forms of agriculture. 30 per cent of the population in Turkey is engaged in agriculture compared with only 5 per cent in the EU-25. If Turkey was to join the EU today it would more than double the agricultural population, adding 7.2 million people to the current 6.9 million.

Agriculture has an 11.5 per cent share of GDP in Turkey, compared with 1.9 per cent in the EU-15. Some 40 per cent of the population live in rural areas. Agricultural exports are 11.2 per cent of total exports compared with 3.9 per cent in the EU-15. Labour productivity in agriculture is low. Gross Value Added per person is agriculture is one-eighth of the average EU-15 level. Average income per employed household member in Turkish agriculture is less than 40 per cent of the level for non-agricultural workers.

Agriculture does, however, have a dual structure with commercial farms and export-oriented chains for individual products co-existing with subsistence or semi-subsistence farming. The average farm size is six hectares compared to the EU average of 13 hectares. In terms of value, fruit, vegetables and cereals are the most important farm products. Fruit and vegetable production alone accounts for 43 per cent of total output, compared with only 15 per cent in the EU. They also represent over half of Turkey’s agricultural exports. The livestock sector is much less competitive and badly in need of structural modernisation. The country already ranks as Europe’s largest fruit grower, behind Italy and Spain. Turkey occupies a strong position in relation to individual speciality crops. It is the second largest producer of hazelnuts in the world and is a competitive producer of peas, lentils and olive oil.

There are major animal health problems in Turkey. In the veterinary area, major efforts would have to be made to improve conditions and in particular controls on the eastern border. Some highly infectious animal diseases that have virtually disappeared in western and northern Europe remain endemic in Turkey. For example, outbreaks of foot and mouth disease have occurred in virtually every year since 1996. Turkey is also prone to outbreaks of anthrax and brucellosis. Food hygiene standards are poor.

Turkey lacks an adequate infrastructure of trained staff to implement the various rules and regulations that accompany CAP membership, although it is the case that farm policies are even more interventionist than those of the CAP. Yet levels of support are lower with a PSE in Turkey of 26 per cent compared with 37 per cent in the EU-15.

Rural development policy in Turkey is focused on large-scale investments in areas such as irrigation. Major dam projects are being undertaken in south-east Anatolia and should increase the farmland area benefiting from irrigation facilities by some twenty per cent. Structural policy would be a new concept for Turkey, however.

Agricultural policy has often been driven by vote seeking in rural areas and farmers’ organisations have been weakly developed. Nevertheless, the Agriculture Reform Implementation Project (ARIP) of 2001-5 represents a new direction in agricultural policy and aims to bring Turkey more in line with the EU. Price support has been reduced, subsidies have been removed and a direct income support for farmers similar to that now used in the EU has been introduced. This is not, however, fully decoupled as it is based on flat-rate payments per hectare, capped at 50 hectares. Most products, however, still enjoy high levels of trade protection, reflected in a considerable agricultural trade surplus. Attempts to reform the state-controlled Agricultural Sales Co-operatives have made little progress.

Calculations of the impact on the EU budget of Turkish membership vary according to the basis for the estimates made. Most estimates are based on the assumption of Turkish membership by 2015 which many analysts regard as unrealistically early. Assumptions also have to be made about the progress on further CAP reform by 2015.

The Commission’s own figure estimates the cost to the agriculture budget in 2015 at 2004 prices would be around €11.3bn, a larger sum than that taken up by the ten new entrants to the EU in 2004. Economists at Wageningen Univeristy have come up with a lower estimate of €5.2bn, made up of €3.6bn for market measures and direct aid and €1.6bn for rural development expenditure. However, this depends on a number of assumptions that include reform of the EU sugar regime, abolition of EU export refunds and a 20 per cent appreciation of the Turkish lira. There would also need to be 2 per cent annual decreases in EU income transfers from 2006 and further WTO tariff cuts after the completion of the Doha Round. Agra Europe estimates that the accession of Turkey and Croatia would add around €60 billion at the end of the next budgetary perspectives period or an estimated 19 per cent addition to an estimated 2013 expenditure level of €51.2bn for the EU-27, pushing the CAP spending total to around €60 bilion. In broad terms it seems realistic to expect an increase of over 20 per cent in the current CAP budget following Turkish membership.

Turkish membership would lock the EU into a long-term commitment to transferring resources to a largely backward agrarian economy. Indeed, in the short run, the shock of competition with the EU would exacerbate pre-existing problems of poverty.
Modernisation through skill transfer would be limited by the fact that 18 per cent of the agricultural workforce is illiterate. If employment in farming was to be reduced to a level nearer to its share of national output, a working paper by the Centre for European Reform estimates that it would be necessary to take eight million families out of agriculture.

There is a real danger that Turkish membership would embed a CAP dominated by redistributive policies that maintain inefficient forms of agricultural production. Admittedly, the prospect of Turkish membership could provide a new reform stimulus, but such pressures tend to have uneven effects.

Turkish accession is largely driven by 'big picture' political considerations, particularly for the UK, with the question of the CAP being left to negotiations with the hope that it will be all right on accession night. However, failure to arrive at a satisfactory deal would certainly delay entry and might halt it altogether given the lack of enthusiasm among many European states.

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