Theorie und Politik der Europäischen Integration Prof. Dr. Herbert Brücker Lecture 10 Regional and Agricultural Policies Theory and Politics of Eropean.

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1 Theorie und Politik der Europäischen Integration Prof. Dr. Herbert Brücker Lecture 10 Regional and Agricultural Policies Theory and Politics of Eropean Integration

2 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Last Lecture Integration of European Labour Markets ·Institutions –Free Movement of Workers –Transitional Arrangements –Third-Country Immigration Policy ·Scale of Migration –Incentives –Facts ·Skill selection of migrants –Self-selection theory –Facts ·Labour market impact –Clearing labour markets –Rigid labour markets –Adjustment of capital stocks and trade

3 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Macro impact of Eastern Enlargement Migration triggered by EU Eastern enlargement ·EU-15: + 0.36 % of LFS ·NMS-10: -1.1 ·EU-25: +0.1 (due to higher participation rate) GDP ·EU-15: 0.13/0.26 ·NMS-10: -0.52/-1.1 ·EU-25: 0.11/0.20 GDP p.c. ·EU-15:-0.09/0.03 ·NMS-10:0.65/0.05 ·EU-15:0.11/0.20 Factor income per native ·EU-15:-0.02/0.1 ·NMS-10: 0.65/0.05 ·EU-25:0.16/0.25

4 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Macro impact of Eastern Enlargement Average wages ·EU-15:-0.09/0.0 ·NMS-8:0.25/0.00 ·EU-25:-0.07/0.0 Average unemployment rate: ·EU-15:0.06/0.02 ·NMS-10:-0.42/-0.02 ·EU-25:-0.03/0.0

5 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Impact on macroeconomic aggregates

6 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Wage impact by skill groups

7 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Wage and unemployment impact by national origin

8 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies This lecture Regional Agglomeration and Regional Policies ·Facts on regional concentration and specialisation in Europe ·Theory: Regional Agglomeration and Dispersion ·European Regional Policy Common Agricultural Policy ·Theory: Impact of price subsidies ·CAP’s problems ·CAP’s reforms ·Assessment of CAP

9 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Europe’s regions Concern for Europe’s disadvantaged regions has always been part of EU priorities In Treaty of Rome preamble Pre-1986, most spending on regions was national Rural electrification, phones, roads, etc. Entry of Spain & Portugal created voting-bloc in Council (with Ireland and Greece) that induced a major shift in EU spending priorities, away from CAP towards poor-regions “Structural spending” now about 1/3 EU budget

10 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Europe’s Economic Geography: Facts Europe highly centralised in terms of economic activity. western Germany, Benelux nations, N.E. France and S.E. England have 1/7 th land, but 1/3 rd of pop. & ½ GDP Periphery has lower standard of living More unemployment ·Especially among youth More poverty

11 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Geographic income inequality Very uneven income distribution, geographically 1999 income/pop by nation Luxembourg is 110% richer than average Bulgaria only 26% of average

12 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Geographic income inequality income distribution even more uneven at regional level. Within nation economic activity is very unevenly distributed Income distribution has become: More even in EU15 Less even within EU15 nations (by region)

13 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Geographic income inequality French example Ile de France (Paris) has almost 1/3 of all economic activity Per capita incomes (not shown) are 158% of EU15 average Mediterranee has 10% of GDP, 12% of population ·GDP/pop only 86% of EU15 average Outre-Mer are former French colonies (poor islands in Caribbean, etc.)

14 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Geographic specialisation Krugman index of specialisation shows most EU nations becoming more specialised EU economies seem to be specialising more in their comparative advantages

15 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Theory 2 major approaches linking economic integration to change in the geographic location of economic activity Comparative advantage suggests nations specialise in sectors in which they have a comparative advantage New Economic Geography suggests that integration tends to concentrate economic activity spatially General idea: Use c.a. approach to explain cross-nation facts Use NEG to explain within nation facts

16 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Comparative Advantage and Specialisation

17 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Agglomeration & New Economic Geography When productive factors can cross borders (international or inter- regional) integration may have very different effects Scale economies & trade costs generate forces that encourage geographic clustering of economic activity. "Overall clustering“ = some areas with lots of economic activity, others empty “core-periphery” "Sectoral clustering" = each sector clusters in one region, but most regions get a cluster

18 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Agglomeration & Dispersion Forces Basic idea is that lowering trade costs affect both Agglomeration forces Tend to lead industry to cluster geographically Dispersion forces Tend to encourage industry to disperse geographically

19 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Agglomeration Forces Many agglomeration forces Technological spillovers (e.g. silicon valley) Labour market pooling (e.g. City of London) Demand linkages (a.k.a backward linkages) Supply linkages (a.k.a foreward linkages) NEG forces on demand & supply links since they are clearly affected by economic integration (lower trade costs)

20 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Circular Causality & Demand Linkages 1. If some industry moves to big region 3. Market Size Effects: big market gets bigger, small market gets smaller 4. Production Shifting, Due to trade costs, firms prefer to locate in big market. More industry moves to big region 2. Expenditure Shifting, workers spend incomes in big region instead of in small region

21 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Circular Causality & Supply Linkages 1. If some industry moves to big region 2. Production Shifting, Migrated firms’ output now cheaper in big region & dearer in small region (trade costs) 3. Cost Shifting, Availability of wider range of locally available intermediate goods makes big region cheaper place to produce 4. Production Shifting Some more firms move from small market to big market, attracted by lower costs

22 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Dispersion Forces Many forces lead to a tendency of firms to avoid agglomerations of economic activity Rents and land prices High cost of other non-traded services Competition with other firms The NEG focuses on the last one “local competition” since it is clearly related to trade costs As trade costs fall, distance provides less protection from distant competitors

23 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EE-KK Diagram Study impact of integration on geographical concentration in EE-KK diagram Simplifying assumptions Only 2 regions, north and south 2 factors, capital (mobile), labour (immobile) 2 sectors, services (L-intensive), industry (K-intensive) ·Assume one unit of K required per industrial firm –Implies north’s share of K is also its share of industry

24 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EE Curve EE curve shows demand linkage EE upward sloped; as north gets a larger share of industry its market becomes larger relative to that of the south. EE steeper than 45 o ; the mobile factor makes up only part of total expenditure. For EE line, trade costs don’t matter What matters is how much labour and how much capital is in each region. As north’s labour share rises, EE shifts to right

25 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies KK Curve KK is upward sloped steeper than 45 o (home market effect) trade costs level affects the KK curve. trade costs ↓, KK gets steeper share of labour in the two regions has no impact on KK

26 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EE-KK Diagram: locational equilibrium KK shows how production shifting leads to expenditure shifting EE shows how expenditure shifting leads to production shifting Intersection of EE and KK show equilibrium s K and s E. If economy starts elsewhere, say A, expenditure and production shifting move it to B

27 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EE-KK Diagram: locational equilibrium (cont.) European integration lowers trade costs KK rotates counter clockwise around ½,½ More industry moves to the bigger market B to B’ Explains tendency of integration to foster geographic clustering of economic activity Can be all industry (empty out some regions) Can be clusters by sector

28 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EU Regional Policy EU always had poor regions (Mezzogiorno, etc.) much spending on poor EU regions, but very little by EU (pre 1986) 1973, Ireland (poor at the time joined); 1981, Greece joined but no major reorientation of EU spending priorities. In 1986, Iberian enlargement shifted power in Council and spending priorities changed

29 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EU Regional Policy For historical reasons, EU has five “Funds”, four “Structural Funds”, and ·Spent in any qualified region “Cohesion Fund”. ·Spent only in poor-4 (Spain, Portugal, Greece and Ireland) 5 Funds work together under overall strategy Many programmes, initiatives, and objectives, BUT over 90% is spent on three priority “objectives”

30 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies 3 Objectives Objective 1 (about 70% of structural spending). ·spending on basic infrastructure and production subsidies in less developed regions ·generally defined: regions with incomes less than 75% of the EU average –Nordic exceptions (low population density) ·There are about 50 “objective 1 regions”; they have about 20% of the EU population. Objective 2 (about 10% of structural spending). ·projects in regions whose economies are specialised in declining –coal mining, fishing, steel production, etc. ·spending should support economic and social “conversion” ·About 18% of the Union's population lives in ‘Objective 2” regions. Objective 3 (about 10% of the funding). ·measure to modernise national systems of training and employment promotion.

31 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Regions covered by Objectives 1 & 2

32 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Impact of 2004 Enlargement New members are much poorer than EU15 Difficulties Cost of structural spending could rise substantially 10 new poor nations make some poor regions in EU15 look relatively rich ·Pushes them above 75% of EU25 average Political power in Council likely to shift spending priorites

33 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Impact of 2004 Enlargement Some regions that will pushed above 75% of average will lose Objective 1 status Some, like northern Finland and Sweden are unaffected Low pop density criteria All of 2004 entrants have less than 75% of EU25 average Except Cyprus

34 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Allocations for Newcomers EU already allocated structural spending for newcomers up to 2006. Can predict spending/pop based on income using EU15 numbers “linear” line in figure; NB: newcomers get ‘below the line’ treatment

35 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Allocations for Newcomers (cont.)

36 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Common Agricultural Policy (CAP) Massively complex, massively expensive policy Hard to understand without seeing how it developed CAP started as simple price support policy in 1962 EU was net importer of most food, so could support price via tariff Technically known as a ‘variable levy’

37 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Simple price support with tariff Q price Home Supply Home Demand ZfZf CfCf Price floor PwPw ZC Q price Home Supply Home Demand ZfZf CfCf Price floor (P w +T, or P w’ +T’) PwPw P w’ T’ T ZC Imports (with floor) Imports (without price floor) BA C1C1 C2C2 p ss

38 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Food tax interpretation Price floor supported by tariff is like all-in-one package made up of simpler policy measures. (i) free trade in the presence of (ii) a consumption tax equal to T and (iii) a production subsidy equal to T. Price, quantity, revenue and welfare effects are identical Q price Home Supply Home Demand ZfZf CfCf Price floor PwPw ZC BA C1C1 C2C2

39 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Food tax interpretation This is insightful: makes plain that consumers are the ones who pay for a price floor enforced with a variable levy. Part of what they pay goes to domestic farmers (area A), part of it goes to the EU budget (area B) part of it wasted (areas C 1 and C 2 ). Q price Home Supply Home Demand ZfZf CfCf Price floor PwPw ZC BA C1C1 C2C2

40 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Farm size distribution in 1987 Very skewed ownership Biggest 7% of farmers owned ½ of the land Smallest 50% of farmers owned only 7% of the land Farm size class (hectares) Number of farms (millions) Number of farms as share of total Share of EU12 farm land in size class Average farm size (hectares) 1 to 53.41149.2%7.1%2.4 5 to 101.16316.8%7.1%7.0 10 to 200.93613.5%11.5%14.1 20 to 500.94613.7%25.7%31.2 over 500.4736.8%48.6%117.6 total6.929100%115 (mill.ha)16.5

41 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies CAP problems First Problem: The supply problem ‘Green’ revolution technology boom, supply ↑ High guaranteed prices encourage investment & adoption Output rises much faster than consumption

42 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Follow-on problems of oversupply EU switches from net food import to exporter in most products

43 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Follow-on problems: World market impact Import protection insufficient for price support CAP becomes major food buyer Some of this is dumped on world market CAP protection and dumping depresses prices on world markets Harms non-EU food exports

44 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Follow-on problems: Budget Buy and storing or dumping food becomes increasingly expensive.

45 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Other CAP problems The farm income problem Average farm incomes fail to keep up despite huge protection and budget costs Most of money goes to big farms that don’t need it ·CAP makes some farmers/landowners rich ·Keeps average (i.e. small) farmer on edge of bankrupcy Farmers continue to exit farming (2% per year)

46 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Other CAP problems

47 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Other CAP problems

48 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Other CAP problems Factory Farming pollution animal welfare Nostalgia Bad for ‘image’ and thus public support for CAP

49 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies CAP Reforms Supply control attempts 1980s, experimentation with ad hoc & complex set supply ‘controls’ to discourage production Generally failed; technological progress & high guaranteed prices overwhelmed supply controls 1992: MacSharry Reforms Basic idea: CUT PRICES supports to near world-price level & COMPENSATE farmers with direct payments Was essential to complete the Uruguay Round Worked well June 2003 Reforms; essential to Doha Round Implementation 2004-2007 Similar to MacSharry reforms in spirit

50 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Evaluation of the today’s CAP Supply problems & food “mountains” Left figure: massive shift to direct payments Price cut reduced EU buying of food: right figure shows important drop in EU storage of food EU dumping of food on world market also dropped.

51 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Farm incomes & CAP support inequity Reformed CAP (post MacSharry) support still goes mostly to big, rich farmers payments intended to compensate, so inequity continued Half the payments to 5% of farms (the largest) Half the farms (smallest) get only 4% of payments Recent studies show that only about half of these payments go to farmers Rest to non-farming landowners and suppliers of agricultural inputs (seed, fertilisers, agri-chemicals, etc.)

52 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Table: CAP support inequity Size Class Payment per farm % of EU15 farm s in size class Number of farms in size class % of EU15 paym ents to size class Cumulative % of budget (from largest to smalles t) Cumulative % of farms (from largest to smalles t) 0 to 1.25€40553.76%2,397,6304.3%100.0%99.97% 1.25 to 2€1,5938.54%380,8002.7%95.7%46.21% 2 to 5€3,29616.30%726,73010.7%93.0%37.67% 5 to 10€7,1289.17%409,08013.0%82.2%21.37% 10 to 20€13,9896.81%303,50019.0%69.2%12.20% 20 to 50€30,0984.13%184,10024.8%50.2%5.39% 50 to 100€67,0950.94%41,70012.5%25.4%1.27% 100 to 200€133,6890.24%10,7206.4%12.9%0.33% 200 to 300€241,1570.05%2,1302.3%6.5%0.09% 300 to 500€376,5340.03%1,2702.1%4.2%0.04% over 500€768,3330.01%6102.1% 0.01% Average, All farms€5,015

53 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Table: CAP support inequity Size Class Payment per farm % of EU15 farm s in size class Number of farms in size class % of EU15 paym ents to size class Cumulative % of budget (from largest to smalles t) Cumulative % of farms (from largest to smalles t) 0 to 1.25€40553.76%2,397,6304.3%100.0%99.97% 1.25 to 2€1,5938.54%380,8002.7%95.7%46.21% 2 to 5€3,29616.30%726,73010.7%93.0%37.67% 5 to 10€7,1289.17%409,08013.0%82.2%21.37% 10 to 20€13,9896.81%303,50019.0%69.2%12.20% 20 to 50€30,0984.13%184,10024.8%50.2%5.39% 50 to 100€67,0950.94%41,70012.5%25.4%1.27% 100 to 200€133,6890.24%10,7206.4%12.9%0.33% 200 to 300€241,1570.05%2,1302.3%6.5%0.09% 300 to 500€376,5340.03%1,2702.1%4.2%0.04% over 500€768,3330.01%6102.1% 0.01% Average, All farms€5,015

54 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies Future challenges Doha Round Failure in Cancun may require deeper reform of CAP Eastern Enlargement Number of farms will rise from 7 million to 30 million Farmland rise from 130 mill hect to 170 mill

55 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies EU newcomers: Farm facts Farmland (million hectares) Number of farms (millions) Average farm size (hectares ) Agricultural employment (millions) Ag. share of employment (%) Ag. share of GDP (%) Czech Rep.4.33.91.10.234.91.7 Estonia0.90.61.60.047.13.2 Cyprus0.10.20.70.014.93.9 Latvia2.51.02.60.1515.13.0 Lithuania3.5n.a. 0.2516.53.1 Hungry5.93.71.60.246.13.8 Malta0.0n.a. 0.002.12.2 Poland18.212.31.52.7419.23.1 Slovenia0.50.7 0.099.92.0 Slovak Rep.2.41.61.50.136.31.9 Newcomer total38.323.91.63.913.23.1 EU-15128.36.818.76.74.21.7

56 Prof. Dr. Herbert Brücker Lehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer Arbeitsmärkte Universität Bamberg | herbert.bruecker@uni-bamberg.de | www.uni-bamberg.de/sowi/bruecker Theory and Politics of European Integration Regional and Agricultural Policies NEXT LECTURE January 15 (!) A Monetary History of Europe Reading: Baldwin/Wyplosz (2006), Ch. 13