Tuesday, September 27, 2005

CAP still takes nearly half of the budget

Defenders of the CAP in its present form are always asking why another reform is needed. Last year agriculture and rural development allocations accounted for 47.5% (€43.6 billion) of the EU budget, admittedly down from 54.1% (€44.4 billion) in 2003.
France was once more the largest recipient of agricultural largesse, followed by Spain, Germany and Italy. New member state Poland appeared in fifteenth position.

Could a better use be found or at least some of this €43.6 billion? I and many others think so.

Monday, September 26, 2005

Some progress in Doha Round

Some progress was made in Doha Round talks between the 'group of five' (EU, US, Brazil, India and Australia) in Paris at the end of the last week. The secrecy surrounding the talks suggests that concrete proposals were being discussed, particularly on the vexed question of market access.

The US and the EU have now accepted the five tier proposal put forward by the G-20 and the EU has indicated that it will keep its list of sensitive products demanding special treatment to a minimum. It is understood that the EU and the US have put concrete tariff reduction proposals on the table, but much needs to be done before the Hong Kong ministerial in December.

At the farm council last week, a number of member states, Spain being the most vociferous, accused the Commission of 'selling out' to the US after a visit by Mariann Fischer Boel to Washington. However, the doughty farm commissioner was having none of it, retorting that 'We are not a gift shop.'

My current forecast of likely Doha Round outcomes in agriculture is:

• There will be an agreement, but not at Hong Kong (there isn’t enough time to sort out all the complexities)
• Export subsidies and their equivalents will be phased out by 2017
• There will be sharper reductions for high tariffs and a 100% AVE limit with very limited exceptions (essentially rice tariffs in Korea and Japan). There will be exemptions from the formula adopted for ‘sensitive’ products
• Permitted domestic support levels will be reduced but not in a way that will seriously trouble the EU and the US
• Cairns Group countries will be allowed to keep their single desk exporters, subject to undertakings on transparency
• ‘As one gets closer to the final deals that need to be fashioned, the GI issue will no doubt play a significant role in the balance of advantage that countries will seek from the Round.’ (Tim Josling)
• Provision for future negotiations will include a review of which subsidies should qualify for Green Box treatment

Anyone who wants my full paper on the Doha Round should E mail me at w.p.grant@warwick.ac.uk

EU wine lake is forming again

Despite the provision of substantial funds for restructuring and the distillation of wine into industrial alcohol, the EU wine lake is forming again. As is the case with many commodity sectors in the CAP, the underlying problem is a structural one.

On the one hand, consumption levels are down, particularly in 'traditional' wine drinking countries such as France, Italy and Spain where the total quantity of wine consumed has fallen by over 50 per cent since 1980. Wine is not necessarily a popular drink with young people in these countries, with beer, alcopops and spirits becoming more popular. In Italy, there are reports that British style binge drinking is catching on.

On the demand side, there is fierce competition from so-called 'New World' wines, e.g., from California, Chile, Australia and New Zealand. These wines are particularly popular in the British market where the emphasis is on low to medium priced 'drinkable' wines. I know that the Australians keep their best wines for domestic consumption. Chilean wines have been doing particularly well in recent years.

As a consequence, EU wine stocks are rising. In Spain wine stocks are now larger than annual production. Total expenditure in the sector in 2004 was €1.227 billion and is estimated at €1.329 billion for 2005. €450m goes into a far from successful vineyard restructing programme, €387m into wine distillation, €232m for alcohol storage and €67 million for wine storage.

A big problem has been the ineffective management of vineyard grubbing and replanting schemes by national governments. The Commission has ordered France to pay back €14.5m of funds received to restructure and modernise vineyards after the money was allegedly misspent.

The Commission has stated that 'It is possible that due to the great variations in production which are typical of the sector and modifications in domestic and world demand, it may be necessary to resort to special intervention measures on the market, as prudently allowed for by the Council.'

Translated this means 'We have no accurate idea of what is going on here so we may have to bail the sector out again and the Council knew this would be good politics because some powerful member states are involved.'