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Three key policy instruments supported the price guarantee system

The most commonly used have been compensation and vice into virtue. Such is the farmers’ influence that is is nearly impossible to impose new costs on them without offering some form of compensation in return. Vice into virtue, meanwhile, has facilitated the successful overhaul of major CAP systems by presenting the task as correcting a malfunctioning program as opposed to simply shutting it down. In sum, the first part of my argument shows why CAP reform is so difficult by revealing both how farmers have managed to retain political influence despite losses in demographic and economic power and by using welfare state theories to identify key obstacles to retrenchment. The second part of my argument identifies the circumstances that may permit systemic reform. The third enumerates the welfare state retrenchment tactics policymakers use to navigate and manage the influence of the farmers. Taken together, my argument accounts for when and why CAP reform occurs as well as the final outcome of CAP reform.Chapter Two describes the history and operation of the CAP leading up to the contemporary period of reform covered in the dissertation’s empirical chapters. The chapter focuses on three main periods of the early CAP: its creation in the 1960s, including early successes and challenges, the failed Mansholt Plan of the 1970s, and the limited changes of the early 1980s. I show that even in these early periods of reform, disruptive politics were a necessary condition for reform and that policymakers utilized welfare-style tactics to achieve what limited success they could. This overview provides the background necessary to understand contemporary challenges to the CAP and obstacles to reform. Chapter Three focuses on the 1992 MacSharry Reform of the CAP. The MacSharry reforms marked the first major overhaul of the Common Agricultural Policy since its adoption in 1962. The MacSharry Reform took place under conditions of disruptive politics,blueberry container size as the negotiations overlapped with the GATT Uruguay Round. The landmark reform paired vice into virtue with compensation in order to transform the CAP’s primary function from production to income support.

Specifically, the MacSharry Reform introduced, in a limited form, a direct payment system that paid farmers regardless of how much they produced, essentially “decoupling” payments from production. Overall, the chapter demonstrates that even when reform was urgently needed, reformers still had to employ a number of welfare retrenchment tactics to overcome farmer opposition and were ultimately unable to cut spending. Chapter Four explores the so-called Agenda 2000 reform. Agenda 2000 was intended to further the objectives outlined in the MacSharry round. However, Agenda 2000 was not negotiated during a time of disruptive politics. The surplus crisis had been resolved by the MacSharry Reform, no GATT/WTO negotiations were scheduled, and the next round of enlargement was far enough in the future that no immediate reform action was required. The Agenda 2000 reform thus allows for the dissertation argument to be tested on a reform that took place under politics as usual. I show that Agenda 2000 ultimately introduced only limited, mostly voluntary change along with substantial financial compensation to farmers. Chapter Five examines the 2003 Mid-Term Review of the CAP, also known as the Fischler Reform, which was not expected to bring about a significant change. This round of reform occurred under disruptive politics, however: the CAP confronted severe financial pressure from enlargement and contentious trade negotiations in the WTO. This round of CAP reform presented a favorable context for reformers to make changes and a challenge for farmers to prevent tough amendments to a flailing policy. Fischler’s reform continued and extended the process of decoupling, begun by MacSharry and also introduced a new version of the compensation scheme called the Single Farm Payment. In addition, Fischler was able to make mandatory environmental policies that had only been optional in previous reforms. Despite these changes, many proposed policy reforms were watered down significantly and reformers had to employ a number of tactics typically used by welfare state retrenchers to achieve their goals. For example, reformers paired a compensation program with the vice into virtue strategy to successfully introduce the Single Farm Payment. Chapter Six investigates the most recent round of CAP reform concluded in 2013, which occurred largely under politics as usual. The budget was not in crisis and the EU was not involved in any WTO negotiations. The only major reform achieved during these negotiations, the recalibration of the direct payment system, is the only one with a clear link to a source of disruptive politics, in this instance enlargement.

The CAP was still contending with the consequences of the previous rounds of enlargement, in particular issues related to an imbalance in payments made to Western and Eastern countries. In order to increase the likelihood of successful reform in at least this domain, reforms linked the policy revisions to the disruptive politics of enlargement, rather than presenting the reforms as routine policy maintenance. Other reform proposals, such as adopting strict greening standards, imposing a ceiling on direct income payments, and restricting the qualifications for receiving agricultural payments, were completely blocked. The within-case variation, then, illustrates the importance of disruptive politics for achieving CAP reform. In Chapter Seven, the conclusion, I demonstrate the applicability of the dissertation argument beyond CAP reform through three mini cases. The first analyzes national government responses to the financial crisis, the second Japanese agricultural policy, and the third farmer influence over international trade negotiations. Across all three cases, each in different institutional settings, a common theme emerges: whatever changes to agricultural policy may be enacted, it is difficult if not impossible to impose spending cuts on farmers. Finally, the conclusion considers the implications of my argument for EU policymakers, for welfare retrenchers, and for scholars of social class transformation and decline.The CAP emerged out of a political deal between France and Germany. France agreed to support the common market, which would be of great benefit to Germany industry, while Germany agreed to support a common policy for agriculture. Essentially, this promise meant that Germany would be paying for French farmer subsidies, and in exchange, France would open its market to German manufactured goods. The Treaty of Rome, signed in 1957, established the European Economic Community , and with it, the common market. It also included plans for a common policy for agriculture to be established within five years. While the Treaty of Rome did not outline the design or operation of the CAP, it defined the objectives of the CAP as follows: “to increase productivity by promoting technical progress…to ensure a fair standard of living…by increasing the individual earnings of persons engaged in agriculture; to stabilize markets; to assure the availability of supplies; to ensure that supplies reach consumers at reasonable prices” . The operational details would be worked out in a series of conferences, meetings, and negotiations that followed the signing of the Treaty of Rome in 1957, culminating in the formal launching of the CAP in 19626 . There was obviously some tension among CAP objectives, and the goal of ensuring products at reasonable prices for consumers would quickly be abandoned: the CAP would be grounded in a system of inflated prices, funded by taxpayers.When the CAP was established,raspberry planter famine was a recent memory, so there was concern for ensuring self-sufficiency in food. During WWII, Europe suffered from food crises ranging from shortages to famine. The Netherlands, for example, endured what is now known as the “Hunger Winter”, when an estimated 22,000 Dutch people died from starvation.

After the war, rationing was common as Europe struggled to feed itself. In Germany alone, the US, with support from the UK had, by 1948, provided nearly $1.5 billion in food aid. The memories of Europe’s food insecurity were, and remain, powerful. Indeed, in speaking to policymakers in the Netherlands about the importance of the CAP, nearly every official referenced the Hunger Winter, even those who would not have been alive at the time . One of the core goals of the architects of the CAP , was to ensure that Europe would always be able to feed itself by boosting agricultural productivity and output. CAP founders also had a social objective, seeking to close the income gap between farmers and industrial workers. In the years just before the creation of the CAP, a noticeable gap had developed between the average earnings of farmers and those of individuals employed in other fields, most notably industry. For example, in Germany in 1958-1959, farm incomes were equal to 76% of non-farmer incomes . The situation was equally grim in the other member states. In France in 1961, farm income was estimated at “3,280 French Francs for farm owners and 2,540 French Francs for farm workers” compared to 4,690 French Francs for industrial wage and salary earners . Policymakers feared that, without intervention, this wage gap would only worsen. The ultimate result would be an uncontrolled rural exodus, collapsing the countryside and overburdening cities, as farm workers sought more lucrative industrial jobs. The CAP sought to achieve the goals of increased production and improved earnings through a system of price guarantees, with agricultural prices set well above world market prices.The first was a set of high import tariffs and other measures to limit the import of agricultural goods. The second was a guarantee to engage in intervention buying, whereby the EU would purchase those goods in excess of EU customer demand at inflated prices. The third was a system of export subsidies that allowed the EU to dispose of the excess product on the world market. Essentially, this system guaranteed that all agricultural output would find not only a buyer, but one who was willing to pay a much higher price than what the market dictated. The CAP registered three major successes in its early years. First, food production, stimulated by high guaranteed prices, increased rapidly. The CAP enabled Europe to attain food security and self-sufficiency. The Continent would never again have to rely on the US to feed its people. The CAP generated a steady supply of core goods including cereals, milk, and butter. In addition, European consumers were provided with an abundant and diverse selection of produce. The second major achievement of the CAP was the modernization of European agriculture. The high prices that incentivized production generated capital that farmers could now reinvest in their farms. In the past, European farmers had tried and largely failed to compete with cheap imports, particularly of cereals, from the United States and Canada. European farms lagged behind the United States, and most farmers did not have the means to modernize and become competitive. The CAP’s high prices and tariff barriers sheltered European farmers from US competition. Farmers who benefited from high prices were able to reinvest their profits into both new technology and more land. New technology facilitated more and faster production at a lower cost. The third achievement of the CAP was to manage Europe’s transition from a primarily agrarian and rural society to an increasingly urban and industrial society. In other words, the CAP allowed for the peaceful management of the rural community’s transformation. The new system which offered higher guaranteed prices allowed smaller and less efficient farmers to stay on the land and eke out a living instead of abandoning it as they otherwise might have done. Thus, instead of a mass rural exodus and the subsequent collapse of countryside, this system slowed the process and cushioned the decline of agriculture. That is not to say that no one left farming under the CAP. Indeed, opportunities for early retirement facilitated the permanent exit of a small number of farmers in a controlled manner. In fact, exit from the sector was used to strengthen it, as the departure of predominantly small and inefficient farmers allowed the larger and more productive farmers to buy up more land. Essentially, exit permitted a transition to a more modern, efficient model of agriculture, grounded in large farms as opposed to small family or subsistence farms that had once dominated the European countryside. Most importantly, this goal was achieved humanely and without democratic collapse, social upheaval, or economic catastrophe.

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Short-term finance is typically only available at abnormally high rates of interest

The large decrease in sales by florists with only a small change in farm level sales is due to a significant change in retail market shares for floral products. Specifically, other outlets such as supermarkets gained market share for floral products at the expense of individual florists. The situation for lawn and garden equipment and supplies stores is much different than florists or other retailers of nursery products. While total sales decreased after the peak occurring in 2007, the number of retail licenses continued to increase. This is not the case for other retailers handling nursery products. As shown in Table 2, there are fewer producers as well as incidental and specialized nursery retailers. The number of retailers licensed to sell nursery stock decreased from a total of 6,471 in 2003 to 3,022 in 2013, a 3,449 reduction in number of outlets. Given much smaller reductions in wholesale nursery sales, the surviving retailers are larger on average and probably have smaller operating margins than was typical for florists. This very significant reduction in the number of California retailers handling nursery and floral products has implications for both producers and consumers. Some producers undoubtedly lost their major retail customers while many lost important retail outlets. The impact of the loss of outlets was not uniform but it was widespread. This consolidation of outlets may offer some economies in distribution but the short-run impact on floral and nursery product sales will be negative. Products are not as available at the consumer level as previously, which tends to reduce consumer choice and negatively impact impulse buying. A change from specialized to multi-product retailers tends to reduce customer service and may reduce product assortments. And, finally, the changes noted may be associated with more market power in the hands of surviving retailers. With varying degrees of enthusiasm, the governments of the central and eastern European Countries all aspire to join the European Union . These aspirations were given strong encouragement at the EU’s 1993 Copenhagen Summit,blueberry container size at which time associated CEECs were told they would eventually gain membership.

Along the path to accession, however, lie difficult policy choices and delicate negotiations concerning the pace and terms of economic integration. Of these, among the most challenging are those affecting the fate of agriculture in the emerging market economies. Accession to the EU has historically implied the integration of the new member into the community’s Common Agricultural Policy , a complicated system of interventions whose most prominent and expensive features are designed to support prices of program commoditiesl through intervention purchases, and to shield markets from external competition through tariff barriers. As in previous accession negotiations, EU negotiators will be concerned about the impact of accession agreements on the EU treasury, while CEEC governments will be attentive to their implications for national budgets. Furthermore, many producer groups in the West will be nervous about granting market access to Eastern competitors; the political clout of these interests will constrain the negotiations. As with the accession of southern members Greece, Portugal, and Spain, the new members would be substantially poorer and less technically developed than those currently in the Union, raising the possibility of the need for substantial technical assistance. In the case of the CEECs, other issues arise that have no clear precedent. First, there is the unusual size and importance of agriculture in these countries. Depending on the chosen measure, these nations would increase the size of the Union’s agricultural economy by roughly one third. 1 In each nation, agriculture accounts for a larger share of employment and GOP than is typical in the current Union. Second, these countries share with their western neighbors a similar continental, temperate climate, and similar growing conditions. In the long run, after a period of restructuring, their agricultural sectors could display patterns of comparative advantage similar to those in the current EU member states, a prospect that makes concerns about competition even more pronounced than in past expansions . Third, these countries are presently going through a profound process of economic transformation that hopes to shed the legacy of the socialist period in favor of a market-based system of production. Eastern governments will have to consider how an accession agreement will affect the ongoing process of market development and enterprise restructuring currently unfolding in these emerging economies.

Finally, the requirements of the Uruguay Round of the GAIT -will be an important new factor regulating agricultural trade, imposing new constraints on allowable treaty terms. The overall success of the accession accords may be determined primarily by factors outside agriculture. Nonetheless, the treatment of agriculture promises to playa central, and delicate, role in the accession negotiations. Nearly a decade after the region embraced market economics, their agricultural sectors continue to struggle with the transition from a socialist production system. While it is problematic to make generalizations across the entire region, we can identify a few of the key characteristics of today’s CEEC agriculture that are likely to have first-order impacts on the prospects for long term performance . Farm enterprises in these countries can be broadly grouped, by size, into two types: large enterprises that are primarily the successors to state and collective farms organized during the socialist period; and smaller, usually privately-owned, operations. These latter farms, sometimes covering less than one hectare, have often been established by former members of the collective farms who have taken their land out of collective enterprises in an attempt to “make it on their own.” Both types of farms are typically under capitalized, or have a mix of capital goods inappropriate to the kind of production in which they are engaged. In the face of woefully imperfect capital markets, farms are typically unable to undertake investments to improve their efficiency, even in cases in which such investment would be profitable , depending, of course, on the cost of debt.Credit constraints are a particularly severe problem for the smaller farms, which tend to lack either demonstrable collateral or social clout. Persistent problems with land titling, and generally with the development of a market for land, impede the ability to offer land as collateral, further exacerbating problems in the market for long-term credit. Capital market imperfections are, therefore, one of the key barriers preventing an improvement in the technical efficiency of East European farms, which consistently lags that in the EU.

These problems are aggravated by the poorly developed state of public goods in rural areas, including transport and storage infrastructure and market information . In the socialist period, much of this rural infrastructure was provided from within the large enterprises. A system of infrastructure supporting independent farms has not yet emerged. These features the split between large and small farms, the low level of technical development on most farms, imperfections in market for agricultural fmance, poor provision of public goods, and a history of government-controlled prices-define the landscape of agriculture in Central and Eastern Europe. These are the initial concerns that government policymakers in the region have to consider as they chart their agricultural strategies over the coming years. Official statements from CEEC policymakers have expressed multiple goals for agriculture during the transition. To the Czech Ministry of Agriculture, for example, an ideal scenario would include the transformation of agriculture along free-market lines; preparation for eventual integration to the EU’s CAP program, and maintenance of a “domestic equilibrium” that would keep farm incomes and output from collapsing during an excessively violent transition . A central motivation for the present paper is the observation, under-appreciated in policy circles, that these goals may be Inconsistent, and that there are points of tension between the goal of creating agricultural economies that respond rationally to market signals,growing raspberries in container and the desire to bring agriculture into alignment with the heavily-regulated CAP programs of the EU. In particular, a single-minded focus on convergence to EU norms can inappropriately distract policymakers from steps that create incentives to improve productive efficiency. Policies that encourage the restructuring of agricultural enterprise during the interim period prior to joining CAP allow factors to flow toward efficient uses. The terms of agriculture under the treaties of accession will have important implications for CEEC decision makers choosing pre-accession agricultural support policies. If CAP is maintained substantially unchanged from its current form , then producers in the new environment will enjoy higher prices, supported through commodity subsidy programs and trade barriers. If a version of CAP covered Central and Eastern Europe, the current owners of land would reap windfall profits, as these benefits became capitalized into land values . . CEEC governments have a number of instruments that they can deploy in order to encourage such transformation. They can adopt policies to encourage the reorganization of agricultural enterprises, to move from a system dominated by huge state and cooperative agricultural enterprises into one more responsive to market signals, including a mix of large and small farms. CEEC governments can also control spen~ing on relevant public goods such as public information and rural infrastructure. They can vary the degree of the economy’s openness to foreign trade, through the erection of tariff and import quotas, export subsidies, and other trade management activities. Commodity price supports and other market manipulation schemes will also continue to offer their rent-seeking temptations.

Indeed, price supports and tariff barriers can have desirable effects, from the theory of the second-best: in the presence of a distortion in one input market-that for credit-a government imposed distortion in the output market can have beneficial effects, by transferring resources to producers that are able to use it efficiently. At the same time, however, distortive policies can create price instability. In this context, free trade can substitute for price supports as a market stabilizing mechanism, operating more effectively and at lower cost. Both distortive and laissezfaire approaches may, however, compare unfavorably with policies that address market imperfections directly. Of course, use of any instruments has associated costs, both directly taxing the government treasury and indirectly imposing adjustment burdens on society. Thus, in bargaining over the treatment of agriculture in accession, and in selecting appropriate pre-accession policies, CEEC policymakers must therefore be prepared to juggle a complicated set of interactions and trade offs. The nature of these trade offs can be clarified through a heuristic version of a comparative statics exercise. Suppose that a government knew with certainty the date and terms under which it would join the CAP, and was cbntemplating a restructuring program that would appropriately position the agricultural sector for successful entry. For a given date of entry, a relatively aggressive restructuring program would create multiple effects, including an increase in the efficiency and flexibility of the agricultural sector; an increase in producer profits and aggregate national wealth in the long term following CAP integration; a short-term decrease in output, as established patterns of production are disrupted; an ambiguous effect on output in the long term; and an increase in the short-term costs of adjustment, including social costs such as unemployment. The government’s fundamental decision problem is how to balance these trade offs, i.e., how to deploy judiciously the policy instruments at its disposal in order to position the agricultural sector for a successful entry into CAP while keeping it robust during the interim period and, perhaps, subsequent to a major reform in the CAP. To be sure, a number of questions concerning the interaction between the terms of accession to the EU and pre-accession policies naturally arise. Let us assume that the CAP will not be altered in the near term and, therefore, that the program’s current form represents a credible policy commitment by the EU, both to its own farmers and to prospective member states of Eastern Europe. 2 How will alternative accession scenarios impact the budgets of the EU and the CEEC national governments, respectively? Under what forms of the accession contract, if any, should the CEECs use the pre-accession period to mimic the EU by adopting CAP-like policies? Do price supports encourage or inhibit efficiency-enhancing restructuring of farm enterprises? Should the restructuring process receive public subsidy? In other words, how should the burdens of the restructuring process be divided between the public and private sectors?