ODI has posted an analysis of how CAP reform could impact on developing countries. It reviews the history of CAP reform, the structure of CAP support instruments, and proposals for the further reform of the CAP (see Agritrade article ‘ Multi-annual budget framework sets scene for CAP reform proposals’, September 2011). The paper highlights the major changes that have been introduced through the process of reform to date, notably:

• the maintenance of EU budget financed expenditures at around €50 billion for the past 15 years;
• the reduction of agricultural expenditures from 70% of the EU budget in 1985 to 40% in 2009;
• the decrease in the producer support estimate from 40% of the value of agricultural output in 1986 to 25% in 2009;
• the decrease in coupled payments from 77% of total CAP payments in 2004 to 15% in 2008;
• the expansion of decoupled payments from 3% to 68% of CAP expenditures over the same period.

Critical issues linked to the future reform which have not so far been fully clarified are identified. These include:

• the future overall size of EU budget financed expenditures;
• the extent of the redistribution of direct aid payments across EU member states, to ensure a more equitable system of payments between new and old EU member states;
• the extent of the targeting of direct aid payments on environmental objectives and the extent of the refocusing of support on environmental and climate change related objectives;
• the extent of the redefinition of permissible measures eligible for support under EU rural development programmes.

In terms of the external effects of the CAP, the paper notes the possible effects of changes in the use of specific policy tools. With regard to import tariffs, largely a WTO-related issue, it notes that any significant reductions could accelerate preference erosion processes for traditionally preferred partners (e.g. the ACP). On export subsidies, the paper notes that their removal would lead to losses for some developing country consumers and gains for producers and exporters whose products have previously been displaced by subsidised EU exports. On coupled payments it is noted that this reduces ‘net exports and income’ of developing countries in certain sectors (e.g. cotton). It further notes how decoupled payments increase EU supplies and reduce imports, thereby decreasing developing country exports and lowering world prices.

The paper highlights how in order to identify specific winners and losers, a far more detailed analysis is required at country and product level. It calls for:

• a literature review of the impact of different CAP instruments on non-EU countries;
• a specific study on EU export subsidies and their effects on prices and patterns of production;
• specific studies in areas where it is agreed large effects could be felt;
• a review which places the CAP reform process in its wider global context;
• the establishment of a monitoring mechanism to trace the impacts of the deployment of CAP instruments, so as to promote greater coherence with EU development policy objectives.