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Agriculture and The World Trade Organisation

 | 
Gurdarshan Singh Bhalla
, 
Jean-Luc Racine
, 
Frédéric Landy

I. The national legacies in India and in France

2. Thirty-five Years of Common Agriculture Policy. Consequences on French Agriculture

Christophe Blanc

Texte intégral

1The main objective of this paper is to review French agricultural policies since the 1960’s and their consequences.

2In 1945, as a legacy of the Second World War, France was suffering heavy food shortages. Modernisation of agriculture had been very slow during the first part of the 20th century. Thus France was in deficit for most food production. The number of farms had also decreased very slowly and agriculture still accounted for 35% of the workforce in 1939. It mostly relied on small family farms and farmers’living standards were very low compared with the rest of the population.

3After the war the government wanted to modernise agriculture. It wanted to reduce French dependency on food imports and improve farmers’living standards. Production growth and modernisation were first encouraged in the 1950’s with subsidies for fertilisers and machinery, low rate loans and high guaranteed prices for main productions. Those aspects of the French agricultural policy: modernisation of farms and high guaranteed prices for main productions, would be enhanced in the 1960’s by the “guidance laws” (lois d’orientation agricole) of 1960 and the establishment of the Common Agricultural Policy.

Modernisation of French agriculture in the 1960’s and its consequences

The common agricultural policy (CAP)

4The CAP devised in the early 1960’s had important consequences on the evolution of French agriculture. The Treaty of Rome (1957) founding the European Economic Community defined the aims of the Common Agricultural Policy. It should:

  • guarantee food supplies

  • increase productivity

  • ensure a fair standard of living for farmers

  • stabilise markets

  • provide consumers with food at reasonable prices.

5Designed at a time when Europe was in deficit for food products and most founding members (France, Germany, the Netherlands, Belgium and Italy) were willing to modernise their agriculture, CAP mechanisms were devised to meet that situation. Thus, like the French policy of the 1950’s, CAP’s clear aim was to increase agricultural productivity, food production and to reduce the dependency of Europe on food imports.

6The CAP was also the cornerstone of European integration. One aim of the European Economic Community was the creation of a common market and agriculture could not be excluded from it. But in that case the regulation of agricultural markets could only be performed through a Common Agricultural Policy. French politicians were convinced that the European market could offer great opportunities to French agriculture. Germany and Italy were big importers of agricultural products and France had a good potential to develop its agriculture. It is often considered that the founding of the European Community and the Common Agricultural Policy result from an agreement between France and Germany. A common market would be a great advantage for Germany whose industry was the most powerful in Western Europe whereas France would dominate agriculture.

7The main principles of the Common Agricultural policy were set at the Stresa conference of 1958 and practically applied in 1962. The CAP relies on four fundamental principles:

  • Free circulation of goods in the Community

  • Community preference. The European market has to be protected from imports at low prices from outside the Community

  • Common intervention. The Community regulates European markets. Ifprices fall below intervention prices, goods are bought at guaranteed prices by the Community

  • Financial solidarity. Each country pays its contribution to the European budget. Collected funds are then allocated to the European programs.

8The regulation mechanisms on which the CAP relied can be explained with the following chart (see Graph 1). Those rules typically applied to cereals in the Common Market Organisation. Each year different prices were set by the Council of ministers of agriculture of the Community. The threshold price defined the minimum price for imports entering the Community. If world prices fell below that level, variable duties were imposed on imports. Those variable levies made up for the difference between the threshold price and world prices. The European market was supported with common intervention. If market prices inside the Community fall below the intervention price, intervention organisations must buy surpluses and stock them. Those surpluses can be sold later or exported. In that case, subsidies make up for the difference between intervention price and world prices. Those price mechanisms in fact isolated the Community from world market fluctuations and ensured that European prices evolved between limits defined by threshold prices and intervention prices. It also ensured European farmers endless outlets at guaranteed prices for their products.

GRAPH 1: CAP MECHANISMS

GRAPH 1: CAP MECHANISMS
  • 1 The Community budget for agriculture is handled by the EAAGF (European Agricultural Guidance and Gu (...)

9Expenses due to intervention policy or export subsidies (export refunds) are financed by the European Agricultural Guidance and Guarantee Fund (EAGGF)1. It was first funded by levies on food imports and contributions from Member States. Later contributions were based on Value Added Taxes in each Member States and GDP. As the CAP remained for a long time the most important European policy and accounted for most of European expenses, it entailed benefits for big agricultural and exporting countries. It ensured them a large market and financed their subsidised exports outside the Community. On the contrary net importers would have to import dearer products from other member states or pay heavy duties for imports from third countries (those duties would partly finance EAGGF).

10So French farmers would benefit a lot from the CAP. It isolated Europe from fluctuations of the world market and ensured them stable markets and high guaranteed prices. That was a great incentive for them to improve productivity. French orientation laws of 1960-1962 clearly revealed the strong will of the government to modernise French agriculture.

The “guidance laws” of 1960-1962

11Michel Debré, the Prime Minister of General de Gaulle who came to power in 1958, was convinced of the necessity of a new agricultural policy which would be defined for ten years in a guidance law (loi d’orientation). A second law initiated by the Minister of Agriculture (E. Pisani) completed the first one in 1962.

12The aim of those laws was the modernisation of the French agriculture. It was admitted that many farms were too small to provide their owner with sufficient income. The number of farmers should thus decrease so that those remaining would have larger and modem farms and should enjoy higher incomes. That modernisation took several aspects

Structural and modernisation policy

13The aim was to encourage the creation of medium size farms large enough to absorb technical improvement and to provide its owner with a sufficient income. Other farms had to disappear. Therefore retirement of old farmers was encouraged. The government introduced IVD (indemnité viagère de départ), a special allowance designed to improve their pensions. It was a great success since between 1960 and 1970, 300,000 IVDs were distributed. 34,000 farmers were retiring annually between 1954 and 1962, that number increased to 60 000 between 1962 and 1970.

14Because of the rising prices of land, special loans at subsidised rates were developed for buyers. Land freed by retiring farmers was sold with priority to farmers presenting a sufficient potential of modernisation. For instance, after 1964, a minimum size was required for young farmers founding a new farm and asking for a start-up grant. Thus farms presenting sufficient potential were favoured, they were selected by local committees in which agricultural professional organisations played an important role and favoured the development of medium size family farms.

The economic organisation of agriculture

15The French agricultural policy of the 1960’s encouraged the organisation of producers. Food industry was then growing rapidly. It was processing an increasing share of agricultural production. Better organisation could thus enable farmers to provide it with sufficient quantities of products of adequate quality. It would also protect farmers against the growing power of food industry.

16Producer groups were created for certain agricultural productions (fruits and vegetables, pork, beef, poultry…) for which farmers’organisations were non-existent. Those groups could for instance define rules to improve product quality. Their powers were extended in 1964. For example, production rules designed by a producer group in charge of a product could be extended to all farmers producing those particular goods.

17For other productions, development relied on co-operatives. Particularly developed for dairy products, they bought milk from farmers, processed it, stored and sold dairy products. They provided their members with technical advice, tools and machinery. Those co-operatives played an important role in promoting technical improvements and helping farmers willing to modernise.

Development

18Before World War Π there was no public concern about the training of farmers. Thus farmers’qualification was very low. Agricultural teaching was developed in the 1960’s. Numerous agricultural schools training future farmers were founded throughout the country. Adult training was also developed for farmers. But providing farmers with better training was not the only aim. One also had to convince farmers of the necessity of modernisation and to prepare them to overcome entailing difficulties. Mentalities had to be changed. Thus farmers’professional organisations were closely associated with development and many started their own training programs.

19The 1966 law more clearly defined the aims of development. The state wanted to develop family farms providing their owners with adequate incomes. Chambers of agriculture representing farmers were a suitable place to put development actions in practice. New technical services were then added to those chambers. They were in charge of providing technical advice to farmers and thus replaced local government services. Development actions were partly financed by a new association for agricultural development (ANDA: Association Nationale pour le Développement Agricole), which was jointly controlled by the State and professional organisations.

20One must thus outline that all those services in charge of development were at least partly controlled by farmers and their professional organisations. Those could thus adapt to local situations the development policy defined by the state and could also choose farmers suitable for modernisation.

21Thus farmers’professional organisations played an important role in defining the modernisation policy and implemented it.

Consequences

22The system of guaranteed prices for unlimited quantities ensured by the CAP was a good stimulus for agriculture. It was the extrapolation of a system already set in Western Europe to fight post war shortages.

23Production increased rapidly during the following decade. But demand also grew (especially for animal products), thanks to rapid economic growth and the quick improvement of standards of livings.

24The quick increase in French production and the development of intra-European trade enabled a rapid growth of French exports. In the 1950’s and the 1960’s France suffered a heavy trade deficit of agricultural products. In 1960 exports covered 60% of imports. A small surplus appeared temporarily at the beginning of the 1970’s. It would grow more decisively during the next decade (see Annexe 3 and Annexe 4).

25The modernisation policy also entailed in France a rapid decrease in the number of people working in agriculture. The number of farms decreased by a third between 1960 and 1975 (see Table 1). That decrease in the number of jobs in agriculture did not cause particular problems since the French economy was then expanding rapidly and people leaving agriculture could easily find jobs in other economic sectors. It also enabled a rapid increase of farmers’incomes (see Annexe 1).

TABLE 1: NUMBER OF FARMS IN FRANCE (IN MILLION)

1960

2.13

1965

1.83

1970

1.59

1975

1.37

1980

1.24

1985

1.11

1990

0.94

1995

0.75

1997

0.68

Source: INSEE

The problems of the 1970’s and 1980’s

26At the beginning of the 1970’s French agriculture was enjoying great prosperity. World prices were high thanks to strong overseas demand. Agricultural prices in the world market grew sharply in 1970-1974 with the development of shortages due to the development of imports from the Soviet Union. French farmers’incomes increased by 25% between 1971 and 1973 (see Annexe 1).

27The general economic crisis beginning in 1974, hit agriculture first with the sharp increase in prices of fertilisers, fuel and other inputs. Farm expenses were also growing rapidly because of rising inflation whereas agricultural prices were dropping in constant terms (see Annexe 2) because of increasing overproduction problems. Thus farm incomes stagnated during the late 1970’s and the 1980’s.

28High prices and guarantees provided through intervention and subsidised exports, thus stimulated productions in the European Community at a rate beyond the market’s absorption capacity. European food consumption growth slowed in the 1970’s. Population was growing more slowly and income growth would not entail further increase in food consumption once a certain level of consumption had been reached.

TABLE 2: PRODUCTION AS A PERCENTAGE OF CONSUMPTION IN THE EUROPEAN COMMUNITY

1973/74

1989/90

Cereals

90%

120%

Sugar

89%

123%

Beef

92%

101%

Source: APCA

29To sustain agricultural markets, the Community had to rely more and more heavily on intervention and subsidised exports. This entailed growing expenditures. Devised when the EC was a net importer for most agricultural products the CAP was not initially very costly but expenditures grew rapidly with surpluses.

30In the 1980’s EC governments agreed on the necessity to stop the growth of CAP costs, and means to reduce them and solving overproduction crisis were discussed. The most problematic sectors were dairy products and cereals.

Milk quotas

31In the late 1970’s and early 1980’s over-production of dairy products at the European level was obvious. Special taxes had been created in 1977 to finance the exportation of surpluses but the entailed drop of prices had been insufficient to stop production growth and expenditure growth. Countries with high productivity such as the Netherlands and the United Kingdom wanted a severe drop in the prices of dairy products but this would have entailed for farmers’income losses unacceptable for other countries. So milk quotas were decided in 1984. Maximum production quantities were allocated to member states who were free to allocate them among their farmers. Producing more than one’s quota implied heavy fines. Those quotas were managed in France by the Milk Board created in 1982. It allocated quotas to dairies which then allocated them to farmers. Several steps were also taken to reduce production and free quotas for younger farmers. Premiums were granted to farmers stopping their milk production and early retirement of dairy farmers was encouraged. This stopped production growth and the number of dairy farms declined sharply during the following years. Quotas were reduced several times during the next years. The aim of stopping production growth was clearly reached since between 1980 and 1989 European production fell by 11%.

Cereals, oilseeds and protein crops

32Thanks to high prices and rapid technological improvements, European cereal production had grown rapidly in the 1960’s and 1970’s. Self-sufficiency was reached in 1979 and European surplus became endemic after 1980.

33High prices of European cereals also discouraged cereal use in animal feed. Intensive animal farming (pig, poultry) had developed rapidly in Europe (in western France and the Netherlands) in the 1960s and 1970s and it relied more and more heavily on cereal substitutes (manioc, com gluten feed…), which could be imported duty free and therefore were cheaper than European cereals. Thus consumption of European cereals in livestock farming grew very slowly and growing quantities had to be exported on the world market with subsidies.

34In a first attempt to reduce over production, cereal prices were lowered by 25% in real terms between 1984 and 1987 and maximum guaranteed quantities were set for production in 1989. If production was higher than those quantities, prices for the next harvest would be lowered by 3%. Set aside programs on a voluntary basis were also developed, but they had very little success.

35Oilseed production also expanded very rapidly in the 1970’s and early 1980’s. This was due to a new policy decided by the Community in the early 1970’s. The Community depended on oilseeds for vegetal proteins. These are a by-product of oil production (oil cakes). This product was first developed in the US (soya-beans). Their use as animal feed was then promoted in Western Europe. When the CAP was designed in the 1960’s it was decided that cattle-cake could be imported without duties. Imports were then very low but their consumption and imports from the US grew rapidly as intensive livestock farming expanded.

36In the early 1970s severe shortages appeared in the world market. The European Community then decided to promote the cultivation of oilseeds and protein crops in Europe with subsidies. High prices were guaranteed to farmers for oilseeds and protein crops. Industrialists were compensated for higher prices of domestic products (compared with duty free cattle-cake imports) with subsidies. These crops expanded rapidly in Europe, and more particularly in France, the first producer. Sunflower, non-existent in 1970, expanded afterwards, rapeseeds also increased, but Europe and France still had a heavy deficit for proteins. In spite of that deficit, the Community decided to reduce expenditures and maximum guaranteed quantities were also instituted for oilseeds.

37Beef Common Market Organisation was also altered in the 1980’s. Intervention purchase conditions were hardened and prices were lowered. In compensation direct premiums were granted to farmers. This initiated an alteration of the CAP: a move from support of agriculture through high prices to support through direct subsidies. It would be emphasised by the 1992 CAP reform.

Internal criticism of the CAP

38Thus the CAP was meeting growing criticism in Europe. Its aim of increasing productivity had clearly been reached for main products and growing surpluses were entailing increasing costs.

39In order to stop the increase in costs a guideline was set for EAGGF guaranty expenditures in 1988. Their growth rate could not be higher than 75% of European GNP growth rate. Thus the annual growth rate for 1988-1992 was 2%. This enabled them to reduce the share of agricultural expenditures in the Community budget.

40Thanks to measures previously outlined, intervention stocks of cereals, beef and dairy products decreased at the end of the 1980’s but growth resumed in 1990-1991 and the spending guideline was reached in 1991. Furthermore those costs seemed less and less related with improvement of farmers’incomes which stagnated during the 1980’s (see Annexe 1). Income inequalities were also increasing in the farming sector and CAP costs seemed to mostly benefit the biggest farmers who were causing overproduction. High prices also stimulated intensification which was causing growing environmental problems. There was thus a strong incentive to change the way European agriculture was supported.

The GATT negotiations

41The CAP was also meeting growing criticism from Europe’s trade partners. Until the mid-1980’s agriculture had been excluded from GATT negotiations. But in the 1970’s and 1980’s the European Community had to rely more and more on subsidised exports. An increasing share of world food exports came from Europe (see Table 3). This was criticised by other food exporters such as the United States whose agriculture was undergoing a serious crisis at the end of the 1980’s. They accused the European Community of depressing world markets because of subsidised exports and reacted by increasing their subsidies for exports. This trade war was more and more costly for food exporters and the USA with free-trader countries obtained the inclusion of agriculture in the new round of GATT negotiations starting in 1986.

TABLE 3: CEREAL EXPORTS (million tons)

1970

1980

1990

USA

40,4

117,0

97,9

Canada

15,9

21,6

24,2

Australia

11,9

13,3

12,9

European Economic Community

7,1

19,3

27,8

World

108,9

208,4

194,0

EEC share

6,5%

9,3%

14,3%

Source: APCA

42The way the CAP was criticised in those negotiations would greatly influence its reform in 1992. Free traders accused European high guaranteed prices and import duties of encouraging production while discouraging internal demand. Growing surpluses had then to be exported with subsidies on the world market, which depressed prices.

43According to free traders, agricultural subsidies had to be decoupled from production. First, unlike high guaranteed prices, direct payments to farmers do not discourage consumption. If those direct payments are decoupled payments (for instance based on historical references and independent of market conditions), they do not encourage production the same way as high prices and thus imply smaller distortions on markets. Furthermore, entailed expenses are known in advance. They are thus more easily controlled than budgetary costs entailed by intervention and subsidised exports.

44In the Uruguay Round, agriculture was a major stumbling block. Negotiations lasted seven years. The United States first wanted the suppression of all subsidies to agriculture which was refused by the European Community. An agreement was finally reached in 1993 after the reform of the Common Agricultural Policy.

45That reform implied a partial change of the way agriculture was supported. Guaranteed prices were lowered and farmers’losses were compensated with direct aids. Thus support of European agriculture was more “decoupled” after the reform. The GATT agreement implied a programmed reduction in domestic support for agriculture by 20% between 1986-88 to 2000. This concept (domestic support) resulted from the addition of direct subsidies and indirect support provided by high prices. An important point was that new direct aids created in the 1992 reform were excluded from the planned reduction. Budget spending on export subsidies had to be reduced by 36% and quantity of subsidised exports had to be cut by 21%.

The CAP reform of 1992 and its consequences

The CAP reform

46That reform was adopted in May 1992. The major changes consisted in replacing a system of support mainly based on high guaranteed prices with a support system to farmers’income based on both prices and direct aids. The goal of the reform was to:

  • ensure competitive advantages worldwide by bringing prices more in line with world prices and recapturing the home market with focus on cereals

  • control production and the excess rise of budget spending

  • contribute to territorial planning and environment conservation

47Thus the reform consisted in substantially lowering support prices for main productions and increasing direct aids to farmers. Cereal intervention prices were lowered by 35%. This entailed income losses which were compensated with direct subsidies. Those payments depended on acreage and unit premiums were independent of market conditions (i.e. prices). They were based on historic yields. Guaranteed prices were suppressed for oilseeds and protein crops. In the same way premium calculated per hectare compensated income losses.

48In an attempt to reduce cereal, oilseed and protein crop production, the compensatory payments were dependent on the withdrawal of land from production. A simplified scheme was introduced for small producers. Those farmers with an area producing no more than 92 tons of grains at average regional yields were, as small producers, exempted from the set aside requirement. The set aside rate was first set at 15% in 1993. It was later lowered to 10% in 1996, and 5% in 1997 and 1998 thanks to better market conditions. For each of those crops unit premiums were lowered if cropped areas were higher than maximum guaranteed cropped areas.

49The same approach was applied to the beef sector. Beef guaranteed prices were lowered by 15%. Premiums based on the number of livestock created in the 1980’s were increased. Those premiums were subject to individual ceilings or regional ceilings and were payable on a maximum stocking rate per hectare. In an attempt to encourage extensification of production methods additional payments were payable when the stocking rate was less than 1.4 livestock unit per hectare.

50An important aspect of the reform was accompanying measures which covered agro-environment, afforestation and early retirement measures. Those measures provided partial responses to environmental and structural problems within the European Union.

51As was previously outlined, high prices of the old CAP had also encouraged intensification. This had entailed higher uses of fertilisers and problems of pollution in certain areas. Thus one of the accompanying measures consisted in granting aid to farmers for the maintenance of production techniques which encouraged the protection of environment, the landscape and natural resources. In France, the main agro-environmental measure consisted of a special premium for extensive livestock farming. It was considered that intensive livestock farming had been favoured by the reform for it got compensatory payments for cereals and silage maize grown for animal feed. Thus the French government created a premium per hectare of meadow. In 1996 that premium was distributed to 102 000 farmers. It represented 1,4 billion FF. Other local actions were financed thanks to agro-environmental measures but the number of farmers and financial amounts involved were a lot lower.

  • 2 Total used agricultural acreage in France amounts to 30 million hectares.

52Afforestation of farmland was encouraged through special premiums but that measure had little success in France. Early retirement scheme permitted those member states which so desire to grant aid to farmers and farm workers, aged at least 55, who wish to cease work before normal retirement age. In 1992 early retirement was proposed in France under certain conditions to farmers aged 55-60 (normal retirement age being 60). Between 1992 and 1997 43 000 farmers benefited from that measure. That freed 1,3 million ha2 and enabled extension of remaining farms but few young farmers settled.

53The reform in France met fierce opposition from the main farmers’unions. Thus as a concession to farmers, taxes on farmland were decreased and special premiums to mountainous areas were increased. In contrast, some French policy analysts considered the reform a success for French negotiators. Being the biggest producers of cereals and oilseeds in Europe, France would benefit a lot from new direct aids. The reduction of price support would also increase competitiveness of French cereals in the European market.

Consequences of the reform

Consequences on EAGGF expenditures

54European agricultural production growth in the two decades preceding the CAP reform had entailed a rapid rise of EAGGF guarantee part expenses in spite of various attempts to stem that growth (milk quotas, maximum guaranteed quantities, etc.).

55The reform enabled that growth to slow down, for direct aids introduced or increased by the reform were subject to individual or global ceilings. Hence they were better controlled than expenses entailed by price support. Thus between 1991 and 1996 expenditures of the guarantee part of EAGGF grew by 20%, but after taking into account expenses due to European Union 1995 enlargement that growth was reduced to 13% and expenses remained under the guideline (see Annexe 3).

56The most obvious consequence of the reform was the growing role of direct subsidies. From 5 billion ECU in 1991 they increased to 28 billion ECU in 1996 (see Graph 2). They now account for 70% of EAGGF guarantee expenditures compared with 15% in 1991.

GRAPH 2: EAGGF GUARANTEE EXPENDITURES

GRAPH 2: EAGGF GUARANTEE EXPENDITURES

Source: EC Commission. EAGGF guarantee VI - G1 - BEP Calculation.

57The composition of those direct aids also changed as the number of sectors supported by direct subsidies increased (see Table 4). Direct subsidies to arable crops increased by 15.3 billion ECU compared with 3.7 billions for beef. As a result the share of direct aids to arable crops increased to 57% (11% in 1991). On the contrary, direct subsidies for beef and sheep which represented 46% of direct support in 1991 now constitute only 22% of those subsidies.

TABLE 4: EAGGF GUARANTEE EXPENDITURES, DIRECT AIDS (MILLION ECU)

1991

1996

1991

1996

Arable crops

632

15938

11%

57%

Beef

713

4383

12%

16%

Sheep

1963

1681

34%

6%

Milk

894

348

16%

1%

Accompanying measures

0

1853

0%

7%

Other

1521

3604

27%

13%

Total

5723

27808

100%

100%

Source: EC Commission. EAGGF guarantee - VI-G1 - BEP Calculation.

58Thus the reform greatly altered the composition of expenditures (see Annexe 6 and Table 4). Expenses for productions depending on reformed Common Market Organisation, for which direct subsidies were introduced or increased, grew of course rapidly during that period. For instance expenses for arable crops increased by 75%. Increase in direct subsidies for cereals, oilseeds and protein crops more than offset the decrease in market support. Expenditures for arable crops now account to 42% of all expenses compared with 29% in 1991.

TABLE 5: EAGGF GUARANTEE EXPENDITURES (MILLION ECU)

1991

1996

1991

1996

Arable crops

9332

16371

29%

42%

Other crops

8852

8630

27%

22%

Milk

5858

3582

18%

9%

Beef, sheep

6274

8481

19%

22%

Accompanying

0

1853

0%

5%

Other

2310

170

7%

0%

Total

32626

39087

100%

100%

Source: EC Commission. EAGGF guarantee - VI - G1 - BEP Calculation.

  • 3 BSE: Bovine Spongiform Encephalopathy.

59Expenditures for animal productions barely changed between 1991 and 1996. But expenses for beef increased by 58% (this is partly due to exceptional expenses because of the BSE3 crisis of 1996) whereas expenditures for milk decreased sharply. Thus expenditures for the milk sector now account for only 9% of total expenditures and the share of expenditures for other animal productions remained stable.

GRAPH 3: EAGGF GUARANTEE EXPENDITURES PER COUNTRY

GRAPH 3: EAGGF GUARANTEE EXPENDITURES PER COUNTRY

Source: EC Commission. EAGGF guarantee - VI - G1 - BEP Calculation.

  • 4 COP: Cereals Oilseeds Protein crops.

60Another important consequence of the reform was an increase in the share of EAGGF guaranty expenditures devoted to French agriculture. Due to the importance of France for COP4 productions in the EU, French farmers get 29% of expenses for cereals support, 36% for oilseeds and 59% for protein crops. Thus French agriculture now gets 25% of EAGGF guaranty expenditures compared with 20% in 1991. The British share also increased while the German share was barely altered. Thus French agriculture appeared as one of the biggest beneficiaries of the reform.

Consequences on farm incomes

61Direct aids to European agriculture increased a lot during the reform. They were supposed to compensate income losses deriving from higher prices. Many forecasting studies predicted sharp income losses when the reform was decided. Studies of farm income evolution in France show that those dire predictions did not come true.

62Results presented in this part of the text derive from a study based on the Farm Accountancy Data Network (FADN). That database offers technical information (acreages, herds…), and financial information (net production, value added, gross farm surplus…) of about 7,200 French farms, which can be considered as a representative sample of the 430,000 professional farms. Thus FADN provides data for about only 60% of French farms. But these farms account for more than 90% of used agricultural acreage and 95% of production. This study gives therefore a fair idea of income evolution between 1991 and 1995 for French farms specialised in productions affected by the CAP reform.

Arable crops

63We studied the evolution of a constant sample between 1991 and 1995 of farms specialised in COP products (Cereals Oilseeds Proteins crops).

64One of the first evolutions to be noticed is the sharp increase in farm sizes (see Table 6). Farmers reacted to the negative effects of mandatory set aside by increasing the size of their farms. This was of course accompanied by a reduction in the number of farms. The main consequence of the CAP reform and entailed decrease in prices was a decline in average net production value per farm, which fell by 28% between 1991 and 1995. That 200 000 FF drop in production value was more than offset by the increase in direct subsidies. Thus total receipts grew by 4%. But only increase in average farm size enabled that growth. Average receipt per hectare fell by 7% during that period.

TABLE 6: RECEIPTS. COP FARMS AVERAGE PER FARM IN FRENCH FRANCS

1991

1995

95/91

Net production (FF)

715 916

515 016

-28%

Subsidies (FF)

14 659

241 429

-

Total receipts (FF)

730 575

756 445

+4%

Acreage (ha)

86 8

96 78

+11%

Total receipts per ha

8 417

7 816

-7%

Source: FADN – COP farms - constant sample.

  • 5 Those concepts are set in context in Annexe 7.
  • 6 Those concepts are set in context in Annexe 7.

65COP farms also reacted to falling prices by reducing expenses. That was particularly true for intermediate consumption (fertilisers…). Taxes were also reduced during that period. Thanks to dropping expenses gross farm surplus5 grew by 19% in current terms and 10% in constant terms. As financial costs and medium and long-term loan repayments barely changed, this enabled a sharp rise of disposable income6 (33%).

TABLE 7: EXPENSES AND INCOME. COP FARMS AVERAGE PER FARM IN FRENCH FRANCS

  • 7 Those concepts are set in context in Annexe 7.
  • 8 Those concepts are set in context in Annexe 7.

1991

1995

95/91

Intermediate consumption

319 511

306 788

-4%

of which fertilisers

76 973

66 768

-13%

Taxes

42 667

14 447

-66%

Gross farm surplus7

287 881

345 047

+19%

Disposable income8

190 489

254 166

+33%

Source: FADN-COP farms - constant sample

66Thus good cereal prices in 1995 and increasing subsidies enabled a strong improvement of disposable incomes for COP farms. Part of this improvement can however be explained by the increasing size of farms. COP farms became also more dependent on direct subsidies. 95% of their disposable income derived from it in 1995 compared with 8% in 1991.

Beef and dairy farms

67Prospective studies predicted income improvements for those farms since subsidy increases more than offset the price reductions. The study of income evolution of a constant FADN sample of beef and dairy farms enabled to confirm that result.

68As COP farms and beef farms reacted to the reform by increasing their size the thus increased production volumes per farm enabled them to offset the drop in prices. Furthermore, price fall for beef was very low between 1991 and 1995. Beef prices declined by only 4% during that period (compared with a 15% lowering of intervention prices). That slower decrease of market prices can be explained by several factors. Prices in 1991 were very low because that particular year was a peak in the beef production cycle and the production decline during the following years improved market conditions before the 1996 BSE crisis. Their growing size enabled beef farms to expand their herds by 16%. They could that way increase production volume and number of premium units.

69Subsidies more than doubled. As French beef farms were more extensive than their European counterparts, most of them got extensive additional payments. This showed that extensification incentives in the CAP reform were not very constraining and average beef farms stocking rate barely changed between 1991 and 1995. Extensive beef farms also benefited from new agro-environmental measures whereas their more intensive counterparts benefited from cereal premiums for silage maize and lower cereals prices.

70Thus total receipts grew by 24%. As expenses increased more slowly, average gross farm surplus increased by 42%. Subsidy increases, as forecasted, more than offset the negative effects of the fall in prices. But just as COP farms and beef farms became more dependent on subsidies, 60% of their gross farm surplus (40% in 1991) and 90% of their disposable income now derive from it.

TABLE 8: GROSS FARM SURPLUS, BEEF FARMS AVERAGE PER FARM IN FRENCH FRANCS

1991

1995

95/91

Net production

288 076

296 540

+3%

Subsidies

57 870

131 265

+127%

Total receipts

345 946

427 805

+24%

Expenses

195 356

213 369

+9%

Gross farm surplus

150 590

214 435

+42%

Source: FADN - beef farms - constant sample

71The Common Market Organisation for dairy products was not particularly altered by the reform but dairy farms endured lower beef and veal prices and benefited partly from subsidy hikes. As COP and beef farms, those farms extended their acreage. This enabled them to increase their production volumes. As milk prices barely changed, net production value increased by 5%. Subsidies almost tripled: many dairy farms benefited from cereal premiums particularly for silage maize and from new agro-environmental measures. Thus global receipts rose by 24% whereas expenses grew by 4%. As a consequence, gross farm surplus increased by 23% but subsidies accounted in 1995 for 20% of gross farm surplus compared with 9% in 1991.

TABLE 9: GROSS FARM INCOME, DAIRY FARMS AVERAGE PER FARM IN FRENCH FRANCS

1991

1995

95/91

Net production
-of which milk
-of which beef and veal

489 522

515 354

+5%

348 108

387 122

+9%

85 263

98 490

+16%

Subsidies
- arable crops
- beef subsidies
- other

18 471

50 870

+175%

0

20 265

2 898

6 821

+135%

5 850

10 367

+77%

Expenses

308 906

321 498

+4%

Gross farm surplus

199 087

244 725

Source: FADN – dairy farms - constant sample

72So in France the CAP reform did not entail the predicted income losses. Farmers benefited from increasing subsidies and reacted to falling prices by extending their farm size, which enabled them to increase production volumes.

73But they became heavily dependent on those direct aids, which account for 50% of disposable income of French professional farms. Those percentages reach 90% for COP farms and beef farms. The rate of decrease in the number of farms also briefly accelerated during the reform.

Conclusion

74French agriculture underwent tremendous changes during the last 40 years. Total agricultural production more than doubled, and France, a net importer of agricultural and agro-business products in 1960, became the second biggest exporter after the USA in the 1990’s.

75But that modernisation entailed a rapid decrease in the number of farm jobs. Two-thirds of French farms disappeared between 1960 and 1996 and the CAP reform briefly accelerated this phenomenon. That did not cause any particular problem in the 1960’s when the economy was expanding rapidly and people leaving the farming sector could find jobs in other economic sectors. It also enabled income improvement for remaining farmers. But nowadays this leads to population desertification problems in certain rural areas where agriculture is the sole provider of employment. Modernisation also entailed for certain products growing surpluses, which had to be exported with subsidies. Furthermore, excessive intensification increased pollution problems particularly with the development of intensive animal factory farming.

76The 1992 CAP reform was partly devised to solve those problems. It partially alleviated overproduction problems. Lower cereal internal prices increased European consumption particularly for animal feed. This led to a reduction of subsidised exports. However incentives for extensification of beef farms were insufficient. Production did not decrease. This is all the more problematic since European beef consumption is falling. Thus beef production surplus in the European Union remains endemic. Agro-environmental measures were also insufficient to promote on a large-scale environment protection.

77The reform with its shift from price support to direct aids enabled a better control of the growth of EAGGF expenditures, but farms, more particularly COP farms and beef farms, became heavily dependent on subsidies which make up 90% of their disposable income. Furthermore those aids based on acreage or livestock units still favour the biggest farms. It also increased incentives for farms to expand and the number of French farms is still decreasing rapidly.

78The CAP will also have to meet several challenges in the coming years. One of them will be the upcoming WTO negotiations starting in 2000. Restrictions on subsidised exports will probably be hardened and agricultural support will have to be lowered. It will also have to be more decoupled (i.e. independent from productions, areas and livestock units…) than it is today. Another challenge will be the enlargement of the European Union to Eastern European countries whose agricultural prices are lower than Western European ones.

79Therefore a new reform of the CAP has been decided. It mainly consists of a deepening of the process initiated in 1992: lowering of prices compensated with direct subsidies for arable crops and the beef sector. More emphasis will also be put on rural development and agro-environment.

80French agriculture heavily dependent on public subsidies will also have to pay more attention to society’s expectations. Consumers are more and more anxious about quality of food and society becomes more conscious of the role agriculture plays in taking care of the landscape and animating certain low density rural areas where it is very often the sole provider of employment. Thus agricultural function is not reduced to the production of cheap food. It also provides other services but those cannot be paid for by the market. Therefore a new “guidance law” (loi d’orientation) for agriculture is under discussion in the French Parliament. Its cornerstone will be “land management contracts”. The role of those contracts will be to pay for those new functions. For instance, help will be granted to farmers adopting less environment damaging practices, promoting employment and rural development or improving their production quality. Thus one aim of French agricultural policy currently consists of basing an increasing share of agricultural support on the remuneration of those new functions. It will help farmers to meet social expectations and, being fully decoupled from production, those support measures will be more easily accepted by our trade partners during the upcoming WTO negotiations.

ANNEXE 1 AVERAGE INCOME PER FARM (FRANCE REAL TERMS 1980 = 100)

ANNEXE 1 AVERAGE INCOME PER FARM (FRANCE REAL TERMS 1980 = 100)

Source: INSEE

ANNEXE 2 AGRICULTURAL AND INPUT PRICES (REAL TERMS 1980 = 100)

ANNEXE 2 AGRICULTURAL AND INPUT PRICES (REAL TERMS 1980 = 100)

Source: INSEE

ANNEXE 3 FRANCE’S AGRICULTURE AND AGROBUSINESS TRADE BALANCE

ANNEXE 3 FRANCE’S AGRICULTURE AND AGROBUSINESS TRADE BALANCE

Source: SCEES

ANNEXE 4 AGRICULTURE AND AGRIBUSINESS TRADE EXPORT AS A PERCENTAGE OF IMPORTS

ANNEXE 4 AGRICULTURE AND AGRIBUSINESS TRADE EXPORT AS A PERCENTAGE OF IMPORTS

Source: SCEES

ANNEXE 5 EAGGF GUARANTY EXPENDITURES

ANNEXE 5 EAGGF GUARANTY EXPENDITURES

Source: EC Commission. EAGGF guarantee - VI-G1 - BEP Calculation.

ANNEXE 6 EAGGF GUARANTY EXPENDITURES IN MILLION ECU

1991

1996

1996/1991

Cereals

5151

11126

116%

incl. market support

4596

432

-91%

direct aids

555

10694

-

Oilseeds

3549

2451

-31%

Protein crops

555

523

-6%

Set aside

77

2271

-

Total arable crops

9332

16371

75%

incl. market support

8700

403

-95%

direct aids

632

15968

-

Milk

5858

3582

-39%

Beef

4308

6800

58%

market support

3595

2416

-33%

direct aids

713

4384

-

Sheep

1966

1681

-14%

Accompanying measures

0

1853

-

Other expenses

11162

8800

-21%

Total

32626

39087

20%

Source: EC Commission. EAGGF guarantee - VI-G1 - BEP Calculation.

ANNEXE 7 MANAGEMENT INTERMEDIATE BALANCES IN FRENCH FADN (FARM ACCOUNTANCY DATA NETWORK)

ANNEXE 7 MANAGEMENT INTERMEDIATE BALANCES IN FRENCH FADN (FARM ACCOUNTANCY DATA NETWORK)

Bibliographie

Bibliography

APCA (1998). L’agriculture française. Repères économiques. Revue des Chambres d’Agriculture, supplément au n°868-869.

Ardouin V., Biscault L. & Redox, P. (1992), La difficile maîtrise des excédents agricoles, Economie et statistique, n°254-255, mai-juin 1992.

Blogwski, A. (1996), Evolution des financements communautaires de marché, Notes et Etudes Economiques n°2, MAP DAFE SDEPE, septembre 1996.

— (1997), Evolution récente des exploitations de grandes cultures, Notes et Etudes Economiques n°4, MAP DAFE SDEPE, juillet 1997.

Boyer, Ph. (1997), Les exploitations d’élevage bovins quatre ans après la réforme de la PAC, Notes et Etudes Economiques n°4, MAP DAFE SDEPE, juillet 1997.

— (1996), Des primes animales, mais aussi céréalières pour l’élevage bovins-viande. Bilan de trois années d’application de la réforme. “Spécial PAC”. Les Cahiers, Agreste, MAPA SCEES, n°l-2, mars juin 1996.

— (1996), La Politique Agricole Commune européenne entre efficacité économique et équité sociale. Huitième conférence des perspectives agroalimentaires québécoises.

SCEES, Graph Agri 1998.

Le Roy, P. (1993), Les agricultures françaises face aux marchés mondiaux. Paris, Armand Colin.

Servolin, C. (1989), L’Agriculture moderne. Paris, Le Seuil.

Sfeir Lues Chen, L. (1995), French Agriculture: Trends and Policies, Agribusiness, Vol 11, No.5, 447-462.

Simon, F. (1998), French FADN, Working paper.

Notes

1 The Community budget for agriculture is handled by the EAAGF (European Agricultural Guidance and Guarantee Fund) which is divided in two areas:
- the guarantee fund finances most expenditures for: regulating the home market through purchases made by intervention organisations, storage costs, direct aid to income, subsidies to help product sales, export refunds.
- the guidance fund manages Community funds for structural policy: modernisation operations, compensatory funds for natural handicaps, young farmer settlement aids.

2 Total used agricultural acreage in France amounts to 30 million hectares.

3 BSE: Bovine Spongiform Encephalopathy.

4 COP: Cereals Oilseeds Protein crops.

5 Those concepts are set in context in Annexe 7.

6 Those concepts are set in context in Annexe 7.

7 Those concepts are set in context in Annexe 7.

8 Those concepts are set in context in Annexe 7.

Table des illustrations

Titre GRAPH 1: CAP MECHANISMS
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-1.jpg
Fichier image/jpeg, 108k
Titre GRAPH 2: EAGGF GUARANTEE EXPENDITURES
Légende Source: EC Commission. EAGGF guarantee VI - G1 - BEP Calculation.
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-2.jpg
Fichier image/jpeg, 40k
Titre GRAPH 3: EAGGF GUARANTEE EXPENDITURES PER COUNTRY
Légende Source: EC Commission. EAGGF guarantee - VI - G1 - BEP Calculation.
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-3.jpg
Fichier image/jpeg, 72k
Titre ANNEXE 1 AVERAGE INCOME PER FARM (FRANCE REAL TERMS 1980 = 100)
Légende Source: INSEE
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-4.jpg
Fichier image/jpeg, 76k
Titre ANNEXE 2 AGRICULTURAL AND INPUT PRICES (REAL TERMS 1980 = 100)
Légende Source: INSEE
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-5.jpg
Fichier image/jpeg, 64k
Titre ANNEXE 3 FRANCE’S AGRICULTURE AND AGROBUSINESS TRADE BALANCE
Légende Source: SCEES
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-6.jpg
Fichier image/jpeg, 288k
Titre ANNEXE 4 AGRICULTURE AND AGRIBUSINESS TRADE EXPORT AS A PERCENTAGE OF IMPORTS
Légende Source: SCEES
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-7.jpg
Fichier image/jpeg, 188k
Titre ANNEXE 5 EAGGF GUARANTY EXPENDITURES
Légende Source: EC Commission. EAGGF guarantee - VI-G1 - BEP Calculation.
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-8.jpg
Fichier image/jpeg, 80k
Titre ANNEXE 7 MANAGEMENT INTERMEDIATE BALANCES IN FRENCH FADN (FARM ACCOUNTANCY DATA NETWORK)
URL http://books.openedition.org/editionsmsh/docannexe/image/7544/img-9.jpg
Fichier image/jpeg, 224k

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