The OECD Working Party on Agricultural Policies and Markets has published an ‘Evaluation of agricultural policy reforms in the European Union’. This extensive report provides detailed description of CAP policies and policy tools, both past and present, and the changes in budgetary allocations over time. The report notes the increasing prominence given to ‘resource sustainability’ concerns, alongside ‘traditional concerns regarding farm income and competitiveness’. It notes the extensive process of decoupling of farm payments which has been under way since 1992, but notes how ‘border protection, domestic market measures and fixed payments have to some extent attenuated farm income variability or the consequences of price variability on income’. Putting this in context, the report highlights how EU enlargement has ‘multiplied the number of farms in the European Union by almost three, but raised the total value of agricultural production by less than 20%’.

According to the OECD, ‘gross farm receipts derived from support to producers decreased from 39% to 23% between 1986-88 and 2007-09’. This is now ‘close to the OECD average of 22% in 2007-09’. The share of the ‘potentially most distorting support’ has decreased ‘from 92% to 34% between 1986-88 and 2007-09’ (with 27% projected for 2012), ‘while the share of least distorting payments … increased from zero to 39% over the same periods’.

Using modelling techniques, the analysis concludes that ‘negative trade effects of the CAP decreased significantly as commodity regimes were gradually reformed.’ In terms of ongoing reforms, the analysis maintains that ‘the removal of dairy quotas’ will ‘result in larger herds and higher milk yields’, as well as increased milk production and lower prices. In related developments, beef production is projected to decrease, with beef prices increasing. The analysis maintains that ‘recent reforms result in increases in imports and reductions in exports for all products’, compared to a continuation of the Agenda 2000 policies.

In the sugar sector, the OECD report maintains that the 2006 reforms have reduced protection and improved market orientation and competitiveness, but that ‘the domestic market is still sheltered by market access regulations.’

These projections, it is noted, do not take account of other global developments which could affect markets and prices.

The analysis also looks at the impact of CAP reform on land markets in the EU, farm incomes, the environment and rural development, as well as the distribution of EU agricultural support.

In terms of the reforms to date, the OECD report concludes that:

• ‘overall CAP reforms … have substantially and continuously increased the market orientation of the sector, reduced distortions, and improved the capacity of the CAP to transfer income to farmers’;
• ‘Large reductions in overall protection have been gradually achieved, with a variable and unequal pace across commodity sectors’, with some remaining sheltered ‘by market access restrictions and provisions for using export subsidies’;
• ‘the reduction in distortions to European Union and world markets has allowed EU farmers to take advantage of market opportunities from stronger and diversified demand for food and non-food use, as well as from higher real prices for a number of major commodities that are expected over the next decade’;
• ‘with the reduction of market management, farmers are becoming more exposed to price volatility in agricultural commodity markets’.

The analysis notes the future challenges facing the EU agricultural sector regarding food security, climate change and market volatility. It argues that future reforms should continue with greater market orientation and should seek to further reduce distortions, with a focus on ‘improving market access … as part of on-going international trade negotiations and bilateral agreements’. This, however, requires addressing ‘remaining market deficiencies’ which constrain EU competitiveness. The report advocates greater use of risk management tools and better targeting of aid to improve environmental performance and strengthen the contribution to rural development. But it is maintained that this requires greater clarity on policy objectives and the establishment of measurable targets for achieving these objectives, with a far closer correlation being achieved between the use of policy instruments and the desired policy objective.