4 September 2003 • The Reform of the Common Agricultural Policy. Consequences for the Austrian Agricultural Sector • Franz Sinabell

On the 26 th of June 2003 a compromise on the reform of the Common Agricultural Policy (CAP) was reached under the Greek Presidency. Model simulations for the Austrian agricultural sector show that compared to a business-as-usual scenario (continuation of the Agenda 2000 Reform from 1999) the CAP reform:

• will have only minor effects on the expected aggregate farm income,

• even in the case of very low farm commodity prices negative income effects can be balanced by specifically tailored measures which are financed by additional funds (from modulation),

• will slightly accelerate structural adjustment (which means less people employed in agriculture),

• will change the framework of production decisions significantly because farm incomes will become less dependent on premiums which are coupled with production,

• will lead to less extensive farming practices and reduce the output of arable crops and beef.

The results show that many of the concerns of Austrian agricultural policy makers have been accounted for by the compromise. Compared to the original proposal of the Europen Commission from January 2003 many effects are likely to be conforming better with the Austrian model of agriculture. This achievement is due to the following outcomes:

• Austria will get 50,000 premium rights for mother cows (equivalent to additional 10 million Euro annually);

• administrative prices will either not be lowered at all (cereals with the exception of rye) or lower to a lesser extent (milk) and

• Austria will get more CAP funds due to modulation, the effort to strengthening the Second Pillar of the CAP (rural development) at the cost of the first pillar (market intervention).

The longer-term consequences of the reform will be a more competitive farm structure, less people employed in agriculture and a pressure for further reforms (e.g., in the sugar policy). Price signals from world markets will become more important for the production decisions of European farmers. However, even after the reform the total expenditures for agricultural policy will not change, only its composition.

For further information, please refer to Franz Sinabell, phone (1) 798 26 01, ext. 481.

For the full text of this article see the Internet under http://www.wifo.ac.at/