Reforms of the Common Agricultural Policy and agriculture in Finland JukkaKola Department ofEconomics and Management, PO Box 27, FIN-00014 University ofHelsinki, Finland, e-mail: jukka.kola @helsinki.fi This article examines some possible paths and inherent political economy of the future reforms of the Common Agricultural Policy (CAP) and their implications for the Finnish agriculture. Scenario ap- proach is qualitatively applied in respect of two policy scenarios, the Agenda 2000 reform proposals and the renationalisation of the CAP. In addition, the proposed European model of agriculture is briefly compared with the farm sector in the United States. Agenda 2000 is regarded as a threat scenario and the renationalisation of the CAP as a target scenario from the point of view of the Finnish agriculture in the European Union. Key words: Agenda 2000, European model of agriculture, political economy, renationalisation, sce- nario ntroduction Agricultural policy is facing major changes in the 19905. Market orientation is increasing as administrative prices and border protection are lowered, quantitative restrictions on production are reduced, and production-related price sup- port is being replaced by decoupled direct (in- come) support. The recent examples of this trend in the European Union (EU) are the reform of the Common Agricultural Policy (CAP) in 1992 and new CAP reform proposals in the Agenda 2000 of July 1997, and in the United States the Federal Agricultural Improvement and Reform (FAIR) Act of 1996-2002. In spite of an overall attempt to reduce gov- ernment intervention in agricultural markets, reg- ulation is increasing in areas such as food safety and quality, genetic modification, agri-environ- mental measures and animal welfare. More and more often a farmer will be eligible for certain aid only through provision of public goods and positive externalities. This development implies a rather different set of policy instruments than has been typical for the history of agricultural policies, and the CAP in particular. The needs for reform of the CAP have been assessed in the 1990 s in two expert groups ap- pointed by the European Commision. The first 12-member group consisted of mainly agricul- tural economists and was chaired by Arne Larsen © Agricultural and Food Science in Finland Manuscript received January 1998 181 Vol. 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND (Commission 1994), whereas the second one, presided by Allan Buckwell, had a somewhat more multi-disciplinary composition with its nine members (Commission 1997a). Neither group had Finnish representation, but e.g. Swe- den had a representative in both of them. Policy studies commonly focus on either the reasons for the policy or the effects of the poli- cy. The former approach usually employs polit- ical economy, or public choice, models ofa pos- itive framework (reviews by Swinnen and van der Zee 1993, Harvey 1997a) and the latter nor- mative welfare economics models (reviews by Bullock etal. 1997,Kola et al. 1997). Blandford (1996) classifies economists who follow the process of (agricultural) policy formationrough- ly into two categories: (a) those who find the process distasteful because it seems to have lit- tle relationship to economic rationality, and (b) those who find the process interesting and try to explain it. This paper represents the latter ap- proach of political economy, like e.g. Mahé and Roe (1996) for the CAP and Paarlberg and Or- den (1996) for the US agricultural policy. This article ( i) identifies and discusses some of the possible future reform paths of the CAP and (ii) examines their implications and politi- cal economy aspects in Finland. The next chap- ter presents the scenario approach as a way to analyse future policy paths. Two specific policy scenarios are discussed in the following chap- ter, in which the European and US models of agriculture are also compared. In the conclud- ing chapter, alternatives for the current CAP are evaluated from the point of view of the Finnish agriculture and its future possibilities. Scenario approach for political economy studies of agricultural policy Scenario approach has, especially since the 1980s, become an important sub-section in the futures research, which, in turn, has been prac- deed in its modern form during about the last 30-40 years (see e.g. Vapaavuori 1993). Man- nermaa (1993) divides the futures research into three approaches: descriptive research, evolu- tionary research and a scenario paradigm. Schwartz (1998, p. 4) defines scenario as a tool for ordering one’s perceptions about alternative future environments in which one’s decisions might be played out. Scenario planning is about making choices today with an understanding of how they might turn out tomorrow. Scenarios can be regarded as images about the way the world might turn out in the future, including conceiva- ble future surroundings of the social and/or eco- nomic entity in question. These images can help decision-makers recognise and adapt to chang- ing aspects of the present environment (of soci- ety, economy, industries, agriculture, etc.) in a world of great uncertainty. Hence, the scenario approach has the potential to increase the rele- vance of scientific studies to policy-makers. Often policy analysis is ex-post. Planning of policy reforms, however, calls for ex-ante eval- uation of the expected effects of policy instru- ments. Actual research on future developments is always very difficult; there are no data availa- ble and there are many unknown factors. Instead of trying to find ways to remove or reduce this inevitable uncertainty, scenarios can be em- ployed to study the future developments with foresight, rather than by means of traditional forecasts or projections of past developments (Hamsvoort and Rutten 1996). Concerning its applications, scenario ap- proach has its origins in the US military circles, and it has then been popularised by large indus- trial organisations in their strategic planning. Hamsvoort and Rutten (1996) point out that sce- nario approach has also become popular in pub- lic administration. In agricultural economics this approach is still seldom applied, although its ability to deal with future uncertainty should have been an essential advantage in e.g. agricul- tural policy studies. Groot et al. (1994), Ham- svoort and Rutten (1996), Paarlberg and Orden (1996) and Wennerholm (1996) are rare exam- ples of scenario applications in agriculture, agri- 182 Seminar in honour of the lOOth anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND business and related policy. In Finland, Parviai- nen (1998) has applied a combinationof a Delphi technique and a Basics PC program ofthe cross- impact analysis in a regional agricultural policy study to construct a set of scenarios describing alternatives for ecologically sustainable agricul- ture and appropriate agricultural policies. Eventually, an important part ofany planning is that new, essential knowledge is developed well in advance before the final decision has to be made. Often, short or intermediate-run plan- ning, i.e., up to 5-year interval, can rely on so- called internal expertise of, say, a firm, under- pinned by existent historical data and conven- tional analyses of e.g. market, economic, and demographic trends in certain regions. Flowev- er, as the planning span is extended to cover more than 5 years, many more, and often also more external and complicated, factors have to be tak- en into account. These factors can be, for exam- ple, changes in general values, technological development, exchange rate fluctuations, inter- national competition and political development. Thus, planning and decision-making become much more complicated and difficult due to in- creasing incomplete and asymmetric information and uncertainty. Scenario approach is one way to deal with this situation by studying and com- bining different trends and driving forces in a systematic way in an attempt to form a holistic view of the future. Driving forces are the poten- tial forces that could cause a certain practice to change. They usually fall into five major cate- gories; society, technology, economics, politics and environment (Schwartz 1998,p. 105-106). Scenarios can be constructed in different ways, depending on the situation and the objec- tive of the study. Scenarios are often created by making a survey among some experts and deci- sion-makers in a certain field and integrating their views into scenarios. In addition, the aim is often to construct ‘extreme enough’ scenarios along with a basic and/or trend scenario. Here, the focus is on policy scenarios, which can be regarded as representing one of the larger cate- gories of scenarios (Hamsvoort and Rutten 1996), others being, for example, technical and social scenarios, threat or conflict scenarios, sur- prise or non-surprise scenarios, as well as the most likely scenario and the normative scenar- io. Policy scenarios The policy scenarios are here specified in respect of the possible future development of the CAP. Identification of the driving forces is important, for they will influence and determine the CAP and the ‘frames’ for, inter alia, the amount, form and allocation of the spending from the Europe- an Agricultural Guarantee and Guidance Fund (EAGGF) in the future. The following scenarios can be constructed: 1. Current CAP. The CAP and the prevailing trends in all key factors and variables affect- ing it are assumed to continue largely as be- fore, without major external (e.g. WTO) or internal (e.g. EU budget or stock-piling) pres- sures. The driving force is mainly of a polit- ical nature, i.e. the status quo preference of decision-makers. 2. Agenda 2000. This scenario is mainly driven by economic and political forces, both inter- national and domestic, including regional interests in the EU. The CAP needs to re- spond to (a) world market developments, in- cluding the trade liberalisationprocess of the GATT/WTO and US farm policy develop- ments, (b) Eastern enlargement of the EU and (c) budget constraints, especially in associa- tion withEastern enlargement, indicating di- minishing funds for traditional EAGGF ob- jectives and possibly also for old member states. 3. Renationalisation of the CAP. The driving force here is both political and social in its nature. It is the recognition and acceptance of the strong differences between the mem- ber states and their agriculture. Emphasis is on the subsidiarity principle and balanced development in the agricultural sectors of the 183 Vol. 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND different EU member states. In addition, an economic as well as political driving force is the willingness of some EU member states to even out EU budget contributions. From the point of view of the EU adminis- tration (Commission), the scenarios most likely represent the background scenario (1), target scenario (2), and extreme scenario (3). For Fin- land, it is argued and analysed here that they constitute a background (1), a threat (2), and a target (3) scenario. To argue that the third is a target scenario for Finland implies that renation- alisation is considered to be a more beneficial alternative for Finland and its agriculture than Agenda 2000. The first scenario is regarded as a non-option and is not elaborated any further, but the latter two scenarios are discussed more in detail in the next two chapters. Agenda 2000 and political economy After the 1992 CAP reform, often deemed as insufficient and partial in its scope as well as unfair in the distribution of programme benefits (Commission 1994, Kola 1996, Mahé and Roe 1996), EU agriculture commissionerFranz Fisch- ler’s Strategy Paper tried to identify the main challenges for the future of agricultural policies in the EU, also in terms of the Eastern enlarge- ment (Commission 1995). The three options evaluated in the paper were: (1) status quo, (2) radical reform and (3) further development and deepening of the 1992 CAP reform. The Com- mission was in favour ofoption 3, assuming that it would lead to higher competitiveness, integrat- ed rural policy and simplification of the CAP, as well as alleviation of the Eastern enlargement. The Fischler paper concluded that “Conceptual- ising this approach and elaborating the right policy instruments to implement it efficiently will be a major task of the coming years, if this option is retained”. The third option was retained, indeed, in Agenda 2000 presented in July 1997 by the Eu- ropean Commission (Commission 1997b). Ac- cording to the Agenda, the prices of cereals would be dropped by 20% in 2000, the price of milk would be lowered gradually by 10% be- tween 2000 and 2005, and the price of beef by 30% between 2000 and 2002. In the revised pro- posals of March 1998, the milk price cut was increased to 15% to take place in four phases during 2000-2003. Price reductions would be compensated - but only partly (about 50-60%) - through direct support according to the same general principles as in the 1992 CAP reform, including arable area payments and premiums for dairy cows as well as beef cattle. Set-aside would be retained as an instrument in reserve, but its percentage will be lowered to zero. Milk quotas will be maintained until 2006, but the Commission also indicates that the quota sys- tem will not continue forever. Ceilings on overall amounts and differentia- tion, i.e. the modulation, of aid per farm are also mentioned, but details on the modulation crite- ria are still missing in the Agenda 2000 propos- als, also in respect of whether such ceilings or differentiation should take place at the level of the Community or individual member states. The Agenda 2000 suggests a 20% cut on payments of over 100 000 ECU and 25% of those over 200 000 ECU, whereas the USA imposed a sub- sidy ceiling of$4O 000 per farm in the FAIR Act. The Agenda 2000 also proposes a reorganisation of the existing rural policy instruments and em- phasises the prominent role of agri-environmen- tal instruments to support a sustainable devel- opment of rural areas and respond to the socie- ty’s increasing demand for environmental serv- ices (Commission 1997b, p. 32-33). The Commission estimated in late 1997 that Agenda proposals will cost an additional 22 bil- lion ECU over 6 years when compared with pur- suing an unmodified CAP. The growth is mainly due to increasing compensatory payments. About 15 billion ECU ofthe additional cost is allocated to the beef regime and 10 billion to the dairy regime, while arable spending is estimated to be reduced by about 4 billion ECU over 6 years. In 1998, the EU spends 40.4 billion ECU on agri- 184 Seminar in honour of the 100th anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND culture, which is 45% of the entire annual EU budget. The final decisions on the Agenda 2000 and its CAP reform proposals are expected to be made in 1999. In a preliminary phase, all EU farm ministers, except Spain, approved the Com- mission’s proposals in the November 1997 Coun- cil meeting, but they did not, however, agree on every detail of the Agenda 2000 proposals con- cerning the CAP. France, as the leading agricultural producer in the EU, has consistently reserved clear judge- ment on a number of key issues in the Agenda, preliminary comments varying according to the product regime and its importance to French agriculture. Because agriculture is ‘an affair of state’ for France (Lueschen 1995), it has often delayed important agricultural decisions, both in the EU and internationally, e.g. during the crea- tion of the CAP in the early 1960 s and the GATT Uruguay Round trade negotiations (Tracy 1989, Lueschen 1995). Germany is also acting cau- tiously, but also very defensively, at least until the parliamentary elections in September 1998, for farmers still have pivotal voting power at margin in national politics, concerning especially the Christian Democratic Party and farmers in Bavaria. Germany seems to be close to the posi- tion of the COPA (Comité des Organisations Professionnelles Agricoles), a Brussels-based lobby for EU farmers. The power balance be- tween France, the leading agricultural power, and Germany, the major net contributor to the EU budget, is important in the CAP decisions. Member state positions on the July 1997 CAP reform proposals of the Agenda 2000 are fur- ther elaborated in e.g. Chambres d’Agriculture (1997), and the reactions to July 1997 and March 1998 proposals are listed in several issues of Agra Europe Weekly. In terms of these positions and reactions, it is useful to look at some basic data, concerning not only agriculture (Table 1), but also food industry and trade (Table 2), be- cause the position of the European food indus- try is very important in policy-making in terms of the EU’s competitiveness on the global mar- ket. Strong exporters like Denmark and the Neth- erlands (Table 2) often support the arguments of the food industry lobbies for less government intervention in e.g. supply management. The UK and Sweden have less significant agricultural sectors and export shares in the national context (Tables 1 and 2), and they, especially the UK as a traditional keen supporter of a more radical reform (MAFF 1995), would like to see still low- er prices and support and immediate abolition of quotas. In the other end of the spectrum are the countries with relatively large agricultural labour force, and often also less-favoured agri- cultural conditions, like the most southern mem- ber states and Austria and Finland (Table 1). These countries usually prefer milder CAP re- forms, together with Germany, and emphasise rural development aspects. Austria, Finland and Sweden also share some interests in environmen- tal and animal welfare factors. European and US models of agriculture Agenda 2000 proposals have generated the dis- cussion on the future direction of the European agriculture. Comparisons are being made espe- cially to therecent developments in the US agri- culture, the USA being the major counterpart in trade issues. COPA opposed immediately and strongly several aspects of the Agenda propos- als, indicating that they would have very dam- aging consequences for the future of farmers and their co-operatives, employment in agriculture and the many related sectors, as well as the via- bility of vast rural areas throughout the EU (COPA 1997a). COPA’s counter-proposals have been tied to the concept of a European Model ofAgriculture (EMA), which many defensive member states have then referred to in terms of the Agenda. In order to develop the EMA, proposals for reform should aim, inter alia, at (1) guaranteeing an increase in farm incomes comparable to those of other socio-professional categories, (2) allow- ing European agriculture to continue to fulfil its multi-functional role (a) as a main world pro- ducer of healthy and high-quality agricultural 185 Vol. 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND Table 1. Basic characteristics of agriculture in the EU countries in 1995. Utilised Average Number Employment in agr., Share in Share in agr. area farm size, of farms, forestry and fisheries EU-15 Gross (UAA) % ha/farm in 1000 share in production Domestic of the thousands persons total em- value. Product total area ployment % % GDP, % Belgium 45 18.8 71.0 102 2.7 3.3 1.3 Denmark 63 39.6 68.8 114 4.4 3.3 2.6 Germany 48 30.3 566.9 1197 3.3 15.7 0.8 Greece 44 4.5 773.8 780 20.4 4.1 7.3 Spain 50 19.7 1277.6 1119 9.3 11.3 3.0 France 56 38.5 734.8 1080 4.9 22.0 2.0 Ireland 63 28.2 153.4 140 11.1 2.1 4.8 Italy 57 5.9 2482.1 1489 7.5 15.1 2.7 Luxemb. 50 39.7 3.2 6 3.7 0.1 0.9 Netherl. 48 17.7 113.2 243 3.7 8.3 2.9 Portugal 43 8.7 450.6 507 11.5 1.7 2.0 UK 65 70.1 234.6 533 2.1 8.8 1.0 Austria 41 15.4 221.8 267 7.3 1.8 1.1 Finland 8 21.7 101.0 156 7.7 1.1 1.1 Sweden 8 34.5 88.8 124 3.0 1.5 0.4 EU-15 42 17.5 7341.5 7857 5.3 100 1.7 USA 47 206.7 2073 3084 2.3 1.8 Japan 14 1.4 3724 3633 6.4 1.6 Sources: Yearbook of Farm Statistics 1997, Finland; Commission 1997c. Table 2. Basic characteristics of food industry and trade of agricultural and food products in the EU countries in 1995. Prod- Share Share in Employ- Share in Share in Trade of uction in EU national ment in the EU national agricultural and value pro- indust- food food industrial food products mill. duction rial industry industry employment ECU % prod., (1000) employ- % % of total % ment % imports exports Belgium 17053 3.5 17 66 2.6 11 12.9 11.9 Denmark 14 100 2.9 28 64 2.5 20 15.8 28.1 Germany 110 943 22.5 11 545 21.0 8 11.5 5.7 Greece 5 187 1,1 27 45 1.7 20 17.9 33.1 Spain 48 722 9.9 20 365 14.1 17 15.6 15.8 France 93 239 18.9 17 352 13.6 11 11.4 14.5 Ireland 14 104 2.9 37 47 1.8 22 9.8 20.3 Italy 50 690 10.3 12 203 7.8 8 15.3 7.1 Luxemb. 369 0.1 7 2 0.1 7 12.9 11.9 Netherl. 32 978 6.7 24 111 4.3 16 15.1 22.8 Austria 12 149 2.5 11 57 2.2 8 8.2 6.5 Portugal 7 925 1.6 18 106 4.1 13 16.5 8.3 Finland 7 198 1.5 12 39 1.5 11 8.6 7.8 Sweden 10 192 2.1 II 60 2.3 11 7.9 5.8 UK 67 273 13.7 16 526 20.3 14 11.4 7.3 EU-15 492 122 100.0 15 2588 1000 I_LB 8.2 Sources; Commission 1997c, SOU 1997. 186 Seminar in honour of the 100th anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND products and (b) in forming the backbone of ru- ral regions for e.g. employment and environmen- tal protection, (3) promoting continued improve- ments in the structures and efficiency in agri- culture, (4) reinforcing specific measures to ben- efit less favoured areas, (5) reinforcing econom- ic and social cohesion to help safeguard agricul- ture in all regions of the EU, and (6) maintain- ing European identity by highlighting the role of agriculture in the society and applying this as the basis of the European position in the forth- coming WTO negotiations (COPA 1997b). The core of the EMA would be a responsible family farm withflexibility in various aspects, the word ‘responsible’ implying responsiveness to the quality, ecological, ethical and social needs of the European citizen/consumer. COPA sees EMA in the middle-way between total opposition to any change whatsoever and unconditional ac- ceptance and application of free trade and new technologies. The concept and persistence of a family farm is one of the most interesting and complicated issues in the discipline of agricultural econom- ics. The concept ‘family farm’ as such is ambig- uous. Definitions may refer to e.g. the size of the farm, employment requirements (full-time and part- time, or own labour only and hired la- bour), ownership and management (owner-op- erators or managers) and succession of genera- tions. The advantages of family farm organisa- tion often include e.g. flexibility and stability (contributing to e.g. food security), high work ethic, and smooth intrafamily transfers of prop- erty and management. It has also been a sort of a way of living, which is now often seen as a disadvantage of the type of an enterprise that a farm should also be, with normal economic prin- ciples. The persistence of(smaller) family farms has been related, especially by Schmitt (1989, 1992), to the low transactioncosts: a family farm is flexible to organise and it is easy to motivate people in the family enterprise, over the genera- tions. This transaction-based efficiency view of family farming is also questioned, for example by Ahearn (1992) and Boehlje (1992). Sociological family firm model is one of the five alternative models of structural change in agriculture and related industries Boehlje (1992) presents and evaluates. He lists nine attributes that might be used to evaluate family as com- pared to corporate and owner-operator versus tenant-landlord ways of organising farming, and concludes that family farming has a clear pref- erence in only one of these attributes, i.e. inde- pendence and control of one’s future. Boehlje’s analyses take us to the roots of an American model of agriculture (AMA). Boehlje (1995) describes how changes in the character- istics of agriculture and the economic climate for farm and agribusiness firms, combined with new concepts ofmanagement and strategic think- ing, have changed the management of success- ful farms and agribusiness to a customer driven business with differentiated raw materials and emphasising so-called soft assets (people, organ- isation, plans and information) as the prime source of strategic competitive advantage as well as power and control. Similarly, agricultural policy has been chang- ing (Table 3) and responding to the changes tak- ing place on farms and in agribusiness. Hence, policy seems to be reactive rather than proac- tive, and many of the policy changes, according to Boehlje, may be more in perception than in reality. Tweeten and Zulauf (1997) present the differences between the old and new paradigm for public policy toward agriculture, defining the paradigm in terms of its central economic con- cepts, underlying beliefs, political situation and resulting policy prescriptions (Table 4). In the old paradigm, the central economic concept of agriculture in chronic economic dis- equilibrium was viewed as the result of (1) rap- id technological advances increasing output and saving labour, (2) slowly increasing demand, and (3) cyclical demand acting on an industry char- acterised by limited ability to adjust. In contrast, the new paradigm views the agricultural sector as near long-term economic equilibrium, and there is no need for continuous government in- terventionfor US commercial farms (sales more than $lOO 000 a year) large enough to earn rates of returns on resources comparable to rates of 187 Vol. 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND Table 3. Changes in the operational environment of agricultural policy (Boehlje 1995). OLD CONCEPT agriculture is farming family farming and a small business unstable supply (primarily domestic) domestic market are prime markets consumers fear high food costs and food shortages consumers believe their food is safe significant political influence (of farmers) adequate budget funds for agriculture farm income measures economic well-being farmers have higher moral standards, a strong work ethic and generally higher values economic well-being ofrural communities depends upon farming NEW CONCEPT agriculture is the food production and distribution system industrialised/corporate agriculture more stable supply (world-wide production) foreign and industrial markets are critical markets food costs are a decreasing part of the consumers' budget and world-wide sourcing reduces the prospects of shortage consumers question the safety of their food limited political influence budget deficits and reduced funding for agriculture farm household income measures economic well-being farmers are no different in terms of moral standards, work ethic and values economic well-being of rural communities depends more on non-farm activity Table 4. Old and new public policy paradigm for agriculture (Tweeten and Zulauf 1997). OLD PARADIGM NEW PARADIGM Central economic concepts Economic disequilibrium Approximate long-term economic equilibrium - excess production capacity - economic efficiency - excess labour - importance of off-farm income - low rates of return Underlying beliefs Farm fundamentalism Democratic capitalism Agriculture as family-farm way of life Agriculture as a successful family business Market failure Government failure Political situation Pivotal voting power at margin Increased reliance on monetary campaign contributions and direct contacts with members of Congress and the executive branch Policy prescriptions Agricultural policy emphasising Public policy for agriculture emphasising commodity programmes market efficiency - supply control - removing market barriers - government payments tied to - providing public goods and internalising production base externalities - stock adjustments - promoting economic equity with safety net - food security through government - food security through private sector 188 Seminar in honour of the 100th anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND returns elsewhere. These commercial farms ac- count for 1/5 of farms but 4/5 of farm market- ings. However, as the off-farm income becomes more and more important on US farms, Tweeten and Zulauf point out that, for commercial farms, farm income is still the main source of family income.This fact also holds for full-time family farms in the EU, having certain implications for the rural viability issues. The trends presented by Boehlje (1995) and Tweeten and Zulauf (1997) emphasise the in- creasing market orientation, commercialisation, and industrialisation together with inherent ver- tical coordination in the US agriculture. Indus- trialisation in agriculture can be defined as the increasing consolidation of farms accompanied by increasing vertical integration among the stages in the production system through contract- ing and integration, all driven by changes in con- sumer demand, production technology and in- ternational competitive pressures (Offutt 1996). This means that traditional family farming is dis- appearing and large-scale, systematised corpo- rate business pattern is also taking an ever larg- er part of the US agribusiness. Moreover, Tweet- en and Zulauf (1997) maintain that commercial farming has moved beyond industrialisation to the post-industrial era of service industries and occupations emphasising information systems, finance, insurance, management and marketing. They see that the post-industrial era ofadvanced science, high technology and specialised man- agement calls for greater private and public in- vestment in human resource development. However, despite these new developments it seems that farmers have not lost their unique- ness as such, not even in the US (in contrast to Boehlje’s argument “farmers are no different from the rest of society” in Table 2). Drury and Tweeten (1997) found out that, compared with the general US population, the farm family pos- sesses valued moral and cultural traits and is more stable, and the typical farmer is more reli- gious, politically more conservative and happi- er. Farmers were also found to be more satisfied with their jobs, which appears to be a function of self-employment (see also Boehlje 1992; in- dependence and control of one’s future). So, it seems that a family farm is prized more by the society than by the market. These are probably the principles on which the European model of agriculture is proposed to be built. This is not economic reasoning, but if the society perceives family farming positively, it is likely to affect political decision-makers and, consequently, agricultural (and rural) policy. The new US farm bill, the FAIR Act, for the years 1996-2002 does not emphasise family farming and commonly inherentrequirements for government support and interventions in order to maintain it. As Tweeten and Zulauf (1997) put it: “The FAIR Act of 1996 opted for the market instead of the government to allocate resources and set returns in agriculture”. In the EU, Agen- da 2000 is only partially moving to this direc- tion as production quotas are maintained, and stronger rural emphasis, at least implicitly, is added. The new farm bill process began as a con- ventional battle over the budgetary cost of com- modity programmes, but in the end theFAIR Act provided the greatest change in the US agricul- tural policy since their start in 1933 (Knutson et al. 1997, p. 280). In jargon, the right economic circumstances (high market prices for field crops) and the right political circumstances (budget cuts, agricultural policy leadership and Republican Party control of both the House and Senate in 1995-96) helped to make this policy change possible and acceptable, also among the farm lobby (Zulauf et al. 1996, Orden et al. 1996, Knutson et al. 1997). Johnson (1996) belittles the changes of the Act by referring to Shakespeare: “Much ado about nothing”. Although the budget was not the key issue (Paarlberg and Orden 1996), it was still important and, therefore, it is worth noting that the compensatory production flexibility contract (PFC) payments required almost 1/3 more mon- ey in 1996 than was the sum of deficiency pay- ments in 1995 in the old farm bill ($5.3 vs. $4.0 billion). Whether these decoupled and de- clining PFC payments from taxpayers to produc- ers will end in 2002 or not will still be a ques- 189 Vol. 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND tion of $4 billion for the next farm bill debate. Budget problems occurred in the EU’s 1992 CAP reform as well, and were worsened by the over- compensation to crop farmers as fixed area pay- ments fully compensated the institutional price drops, but market prices did not fall correspond- ingly (Commission 1997a). Moreover, there is no ceiling on subsidies per farm in the EU, though now cautiously proposed in the Agenda 2000, whereas in the US FAIR Act the ceiling was set at a relatively low level, S4OOOO per farm. The US, with their FAIR Act of clearer di- rect, decoupled income support (PEC payments) than the CAP compensatory payments will put pressure on the EU in terms of the next WTO round of trade negotiations planned to start in 1999, concerning e.g. the so-called greenbox and blue box support measures in the GATT/WTO (see Commission 1996). Thus, in addition to in- ternal EU issues like Eastern enlargement and budget framework of 2000-2006, the driving forces behind the European Commission’s Agen- da 2000 proposals are also clear external pres- sures, in a similar manner as they also were dur- ing the 1992 CAP reform due to the then on- going trade negotiations in the GATT Uruguay Round of 1986-1993. To define and establish the European model of agriculture will not be easy in these circumstances. Renationalisation of the CAP The CAP is not able to deal with diverse farm sectors and production conditions ofall 15 dif- ferent EU member states. The common agricul- turalpolicy is not ‘common’ enough (Kola 1996). Problems of the CAP also include the distortion that 20% of farmers with the largest and most intensive farms in the most-favoured agricultur- al regions in the EU have received 80% of the CAP subsidies (Commission 1994,p. 27). Nei- ther 1992 CAP reform nor Agenda 2000 propos- als attack this problem. In the third scenario, renationalised agricul- tural policy (RAP), more balanced policy actions and support allocation are assumed between less- favoured and most-favoured agricultural regions. Hence, the goal is the better targeting ofpolicy measures and support through the application of the subsidiarity principle also in agricultural policy. The constitutionalprinciples of the Com- munity are: (i) fair competition, (ii) subsidiarity and (iii) consensus. In respect of subsidiarity, the problem is that the CAP, unlike the EU structur- al policy, belongs to the exclusive competence of the Community. National policy measures should also be in conformity with the principle of fair competition. In general, spatially differ- entiated policy responses are needed, especially if environmental protection and rural develop- ment become more important rationales for ag- ricultural policy. Hence, the RAP could also be regionalised agricultural policy. Kjeldahl and Tracy (1994) and Kola (1996) are two examples of the few studies discussing the renationalisation issue. In addition, Harvey (1997b, p. 426-427) concludes that his new framework for an effective and efficient agricul- tural policy mix for the EU implies “a consider- able element of ‘renationalisation’of the CAP, in the sense that socio-political decisions on the appropriate levels and mechanisms for the de- livery of farm support should be devolved from Brussels to the member states and regionally dif- ferentiated within member states”. The Econo- mist (1997) magazine spread the idea more wide- ly by advocating that national governments should mainly subsidise their farmers them- selves, instead of the EU budget and the bureau- cratic, inefficient circulation of money through Brussels. The latter point is also important due to the uneven EU net budget contributions, agri- cultural spending taking about 50% of the bud- get in the 19905. For a longer time, Germany, and the Netherlands more recently, have pointed out this imbalance very clearly. Similarly, there are imbalances in the allocation of EAGGF expend- iture if analysed at the farm level (Table 5). Renationalisation of the CAP is opposed by the EU, for it would (1) distort common mar- kets, (2) break the most integrated Community policy, and (3) harm poorer member states with 190 Seminar in honour of the 100th anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND the removal of common financing. In addition, as Ritson (1997, p. 2) points out, the three fun- damental principles of the CAP, including the common financing, must not be called into ques- tion in any reform of the CAP. More recently, the European Commission has excluded rena- tionalisation in Agenda 2000 (Commission 1997b, p. 32) in association to (the very brief) discussion on differentiation and ceilings, i.e. modulation for direct payments, but would, how- ever, allow member states to introduce differen- tiation criteria according to commonly agreed rules. COPA also regards renationalisation as “quite unacceptable”, at least ifit jeopardises the existence of certain agricultural sectors in cer- tain regions (COPA 1997a, p. 3). But renationalisation needs not do any of these. Firstly, it should be easy to require and control that national policy instruments would not be trade-distorting (e.g. via full de-coupling). The normal operation of the Single European Market (SEM) takes care of the price levels in any case, and, as a whole, the CAP has not pro- vided same, common agricultural prices in all member states due to the peculiarities and com- plexities of the agri-monetary system. Second- ly, there is no need to preserve, in economic terms, an inefficient and, in social and political terms, an unequitable policy unable to reflect the diversity ofmember states, however ‘integrated’ this may be. Thirdly, poorer member states receive substantial funding via ever-increasing EU structural and cohesion funds. They, as all member states, could also receive a minimum level of EU-financed income support for farm- ers in the RAP. The primary responsibility for the implementation ofincome, structural, region- al or social policies could be left on member states (see also Commission 1994), whereas it would be important in the RAP, too, to have a common framework for agri-environmental is- sues as well as quality and safety aspects of food products, including production ethics, animal welfare and veterinary aspects of agricultural production, in the entire EU. Renationalisation of a certain degree does not mean a complete abolishment of the CAP. A lower degree of re- Table 5. EU EAGGF support and agricultural incomes in Member States in 1995-1996. Member state EAGGF support. Agricultural guarantee section incomes total, per farm (1), index: mill. ECU ECU 1989-91=100 1996 1996 1995 1 152 16 225 88.8 1 358 19 738 115.1 6 050 10 672 123.9 2 801 3 620 100.7 4 054 3 173 116.2 9 572 13 027 115.9 1 700 11 082 127.2 4 231 1 705 107.8 20 6 250 93.8 1 536 13 569 86.7 France Ireland Italy Luxembourg Netherlands Portugal 646 1 434 98.5 3 470 14 791 133.7 1 214 5 473 115.8 UK Austria Finland Sweden 649 6 426 82.4 624 7 027 88.5 (1) farm numbers from 1995, see Table 1. Source: Commission 1997 a and 1997c. nationalisation, so-called regionalisation of the CAP is reflected in the proposals of the agricul- tural policy group (MMM 1996,p. 106): the of- ficial key issue for Finland is that the permanent competitive disadvantage of theFinnish agricul- ture, due to her natural conditions, has to be com- pensated by the CAP measures. The 100% renationalisation is unlikely and politically unfeasible for the time being. Yet, renationalisation of a lower degree and the sim- plification of the CAP shouldbe aspired for. For simplification, and stability, there could be a fixed amount of money for several years to mem- ber states from the EU budget. This money shouldbe based on clear criteria taking into ac- count certain special, meaningful characteristics of the member states, i.e. the characteristics that make them eligible for agricultural assistance. Applicable criteria include, inter alia, the fol- lowing factors: (1) unfavourable natural condi- tions (e.g. in Finland a short growing season) Belgium Denmark Germany Greece Spain 191 Voi 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND leading to high production costs, (2) farm struc- ture, (3) the disparity between agricultural and non-agricultural incomes, (4) extent of rural re- gions and the role of agriculture within, (5) al- ternatives for other economic activities in cur- rently agriculture-dominating regions, (6) pro- vision of CARE goods (Conservation, Amenity, Recreational, and Environmental) by agriculture, and (7) the share of agriculture in national em- ployment and gross domestic product (GDP). These criteria aim at reflecting the actual need for support and distributive equity consid- erations. They are clearly different, and proba- bly also more complicated, than those of Har- vey’s (1997b, p. 427) as he proposes that the dis- tribution of the total EU support between mem- ber states should be determined on the basis of base level production shares. This would not al- leviate the serious equity problems of the CAP. One of the fundamental questions in the CAP is whether direct payments will be aid due to some special reasons making recipient countries/farms eligible for public support, or will they remain as traditional compensatory payments for farm income losses. Mahé and Roe (1996) argue that a major challenge is a redesign of direct pay- ments to make themclearly decoupled from pro- duction and more tied to rural goods, the princi- ple of subsidiarity favouring this attempt. The rural aspect is further elaborated and strongly favoured by the so-calledBuckwell report intro- ducing CARPE, the Common Agricultural and Rural Policy for Europe (Commission 1997a). However, as the CAP as such is incapable of dealing with the diverse problems of the mem- ber states, the development towards the CARPE appears as a lost battle before it even started. The renationalisation aspect here is that the member states could use the money from the EU budget, and their possible national, additional financing, as they consider best, in conformity with the relevant regulations of the EU, mainly in terms of agriculture, common markets, and competition policy. The total spending on agri- culture could be reduced, better targeted, and more predictable. Better predictability was evi- dently one of the major achievements in the US FAIR Act as fixed direct payments replaced an- nually volatile deficiency payments (Knutson et al. 1997, p. 278). Conclusions: Finland and the evolution of the CAP The Agenda 2000 CAP reform proposals are not going to be beneficial for Finland as they, in gen- eral, imply tougher competition in the Single European Market as well as from third countries. Because of the high production costs, bringing the producer prices closer to the world market prices is more difficult for the Finnish agricul- ture than for any other EU country. It should be in the benefit ofFinland to emphasise the mod- ulation scheme (a ceiling for subsidies per farm) and, in general, better justification of the use and allocation ofCAP support, especially the arable area payments tied to regional reference yields and the less favoured areas (LFA) support. These would all reduce CAP spending. Inequity prob- lems seem to remain, however, as Agenda 2000 does not revise the criteria for the area payments and proposes to restore the support for silage maize, which cannot be grown in Finland, to compensate for income losses due to the addi- tional milk price cut. Consequently, Finland is demanding sepa- rate, country-specific measures, financed total- ly by the EU, to alleviate these problems. This will not be an easy task, bearing in mind the Accession Treaty ofFinland (Kettunen and Nie- mi 1994), in which the financial responsibility forcountry-specific measures (e.g. northern sup- port and support for remaining serious difficul- ties, article 141) was entirely left on Finland herself. More difficulties arise as other countries follow Finland with their special problems. In these conditions, stronger renationalisation would be an applicable direction for Finland in order to create an agricultural policy sensitive enough to country-specific needs. It could be 192 Seminar in honour of the 100th anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND argued that the more different a country is from the average agriculture of the EU countries, the more difficult it is for it to take an equal advan- tage of the CAP, and the more beneficial the RAP would be for that country. How beneficial it would be for the farm sector would, of course, depend on the domestic political and economic situation. Concerning the political economy of Agen- da 2000 proposals, the positions of the member states depend on, inter alia, (a) how significant the farm sector is in the national economy and employment, and, in particular, in rural regions, (b) how significant role farmers play in the na- tional politics, (c) whether the emphasis is on export orientation and competitiveness or envi- ronmental and animal welfare factors, (d) how much EU farm support they receive from the EAGGF, and (e) whether they are net contribu- tors to or beneficiaries from the EU budget, and how this relation is expected to change with re- gard to the Eastern enlargement. The views of France and Germany are decisive in the CAP reform issues. Finland, in turn, could make an attempt to influence the Agenda proposals by finding member states willing to share common interests and reform arguments. Besides the al- teration of the CAP support criteria, the quality and safety of foodstuffs and the ecological and ethical aspects ofagricultural production are top- ics that Finland should emphasise in the name of the competitive advantage of the national as well as entire EU agriculture and the European model of agriculture. References Ahearn, M.C. 1992. The theory of resource allocation by farm households: the role of off-farm employment, household production and transaction costs: Discus- sion opening. In: Peters, G.H. & Stanton, B.F. (eds.). Sustainable agricultural development: the role of in- ternational cooperation. Dartmouth, p. 515-519. Blandford, D. 1996. The political economy of post-Uru- guay round agricultural policies in the United States and the European Union: Discussion. American Jour- nal of Agricultural Economics 78, 5; 1324-1326. Boehlje, M. 1992. Alternative models of structural change in agriculture and related industries. Agribusiness 8, 3: 219-231. - 1995. 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Selected paper abstracts of the 1997 Annual Meeting of the American Agricultural Economics As- sociation, Toronto, Canada. American Journal ofAg- ricultural Economics 79, 5: 1724. Lueschen, L.S. 1995, French agriculture: trends and pol- icies. Agribusiness 11, 5: 447-462. MAFF 1995. European agriculture: The case for radical reform. Ministry of Agriculture, Fisheries and Food (MAFF), London, UK. Crown Copyright. 42 p. Mahé, L. & Roe, T. 1996. The political economy of re- forming the 1992 CAP reform. American Journal of Agricultural Economics 78, 5: 1314-1323. Mannermaa, M. 1993. Tulevaisuudentutkimus tieteel- lisenä tutkimusalana. In: Vapaavuori, M. (ed.). Miten tutkimme tulevaisuutta? Acta Futura Fennica No 5: 19-33. MMM 1996. Maatalouspoliittisen työryhmän väliraportti. Maa- ja metsätalousministeriö, työryhmämuistio MMM 1996:14. Helsinki. 74 p. Offutt, S. 1996. Subsidizing agriculture: The road ahead. Choices 2nd Quarter: 30-33. Orden, D., Paarlberg, R. & Roe, T. 1996. A farm bill for booming commodity markets. Choices 2nd Quarter 1996: 13-16. Paarlberg, R. & Orden, D. 1996, Explaining U.S. farm policy in 1996 and beyond: changes in party control and changing market conditions. American Journal ofAgricultural Economics 78, 5: 1305-1313. Parviainen,!. 1998. Ekologisesti kestävän maatalouden mahdollisuudet Mikkelin alueella vuonna 2005. Maatalouspolitiikan pro gradu -tutkielma, taloustie- teen laitos, Helsingin yliopisto. 75 p. + appendices. Ritson, C. 1997. Introduction, In: Ritson, C. & Harvey, D.R (eds.). The Common Agricultural Policy. CAB International, UK. p. 1-10. - & Harvey, D.R. (eds.). 1997. The Common Agricul- tural Policy. 2nd edition. CAB International, UK. 440 p. Schmitt, G. 1989. Warum ist Landwitschaft eigentlich überwiegendbäuerliche Familienwirtschaft? Berich- te über Landwirtschaft 67: 161-218. - 1992. The theory of resource allocation by farm households: the role ofoff-farm employment, house- hold production and transaction costs. 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The FAIR Act: Selected implications and unanswered questions. Choices 2nd Quarter: 40-41. Vapaavuori, M. (ed.). 1993. Miten tutkimme tulevaisuutta? Acta Futura Fennica No 5. Finnish Society for Fu- tures Studies. Painatuskeskus, Helsinki. 312 p. Wennerholm, T. 1996. Scenarioteknik vid strategiskplan- ering: tillämpning inom livsmedelskedjan. Paper at the NJF-seminar 264, June 1996, Alnarp, Sweden. 27 p. 194 Seminar in honour of the 100th anniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND SELOSTUS Euroopan unionin yhteisen maatalouspolitiikan uudistaminen ja Suomen maatalous Jukka Kola Helsingin yliopisto Maatalouspolitiikka muuttuu, kun maatalouden mark- kinasuuntaus kasvaa: hintoja ja rajasuojaa lasketaan, tuotannon määrällisiärajoituksia poistetaan ja hinta- tuesta siirrytään suoraan tulotukeen. Euroopan unio- nin (EU) yhteisen maatalouspolitiikan (CAP) uudis- tus vuonna 1992, Euroopan komission heinäkuussa 1997 esittämä Agenda 2000 -uudistusehdotus ja USA:ssa vuosien 1996-2002 maatalouslaki ovat esi- merkkejä tästä kehityksestä. Kansainvälistä painetta aiheuttaa maailmankaupan vapauttaminen GATTin ja maailman kauppajärjestö WTO:n kautta. Tämä artikkeli tarkastelee CAP:n mahdollisia uudistusvaihtoehtoja ja niihin liittyvän poliittis-talou- dellisen päätöksenteon perusteita, keskeisiä tekijöitä ja riippuvuussuhteita. Uudistusvaihtoehtoja, joita ovat Agenda 2000:n mukainen uudistus ja CAP:n kansal- listaminen, tarkastellaan Suomen näkökulmasta. Li- säksi verrataan Agenda 2000:n yhteydessä esiin nous- sutta maatalouden eurooppalaista malliaamerikkalai- seen malliin. Artikkelissa käytetään uuden poliittisen taloustieteen lähestymistapaa, politiikkaskenaarioita ja aineistona CAP:iin ja Agenda 2000:een liittyvää kirjallisuutta ja EU:n asiakirja-aineistoa. CAP:n merkittävä ongelma on, että kuudelle EEC-perustajajäsenmaalle luotuna se ei ole riittävän “yhteinen”, eli se ei pysty vastaamaan 15 erilaisen jäsenmaan erilaisen maatalouden vaihteleviin ja mo- ninaisiin ongelmiin. Suuri vinouma CAP:ssa on ol- lut se, että 20 % viljelijöistä on saanut 80 % maata- loustuesta. Agenda 2000 ei näitä ongelmia poista, vaan se johtaisi komission maaliskuun 1998 esitys- ten perusteella tuotanto-oloiltaan ja kustannustasol- taan poikkeavassa pohjoisessa Suomessa suhteellises- ti suurempiin maatalouden tulonmenetyksiin kuin muissa jäsenmaissa. CAP:n kansallistaminen (RAP = renationalised agricultural policy) sen sijaan vahvistaisi myös maa- talouspolitiikassa läheisyys- eli subsidiariteettiperi- aatetta, joka on tärkeä periaate EU:n alue- jaraken- nepolitiikassa. RAP yksinkertaistaisi CAP:ia ja joh- taisi säästöihin EU:n budjetissa, josta maatalouden osuus 1990-luvulla on ollut noin 50 %. Kansallista- minen selventäisi myös EU:n tulevaan itälaajenemi- seen liittyvien maatalouspolitiikan ongelmien ratkai- sua. CAP:n kansallistaminen voi olla eriasteista, jon- ka lievintä muotoa edustavat Suomen itsensä maksa- mat kansalliset tuet (pohjoinen tuki ja vakavien vai- keuksien tuki) sekä Agenda 2000:n eläintukien ns. kansalliset kirjekuoret. Suomen virallinen vaatimus Agendan aiheuttamien tulonmenetysten täysimääräi- sestä kompensoimisesta EU:n varoin erityisolosuhtei- siimme vedoten edustaa lähinnä CAP:n alueellista- mista. Täysimääräinen RAP merkitsisi jäsenmaiden omaa valtaa ja rahoitusvastuuta maatalousasioissa. EU;n yhteinen kauppa- ja kilpailupolitiikka asettaisi kuitenkin tietyt rajoitteensa mm. tukimuodoille ja es- täisi siten markkinavääristymien muodostumisen yh- teismarkkinoilla. Suomen maatalous hyötyisi kansal- listamisesta, koska oma päätöksenteko voisi ottaa muita vaihtoehtoja paremmin huomioon tuotantom- me erityispiirteet ja -olosuhteet. Suomen poliittinen ja taloudellinen tilanne vaikuttaisivat tällöin maata- lousratkaisuissa. Täydellinen kansallistaminen olisi EU:lle poliit- tisesti vaikeaa, koska CAP on pisimmälle integroitu yhteisen politiikan alue unionissa. Lisäksi EU-jäsen- maiden poliittis-taloudelliset lähtökohdat CAP-uudis- tukseen ovat hyvin erilaisia riippuen mm. siitä, (a) kuinka ratkaisevassa asemassa viljelijä-äänestäjät ovat maan sisäpolitiikassa (tietyille puolueille esimer- kiksi Saksassa), (b) miten tärkeä maataloustuotteiden ja elintarvikkeiden vienti (Ranska, Tanska, Hollanti) tai maatalousväestön merkitys maaseudun väestöpoh- jana maalle on (Välimeren maat, Itävalta, Suomi), (c) miten maa painottaa kilpailukykyä suhteessa ympä- ristöasioihin ja tuotantoetiikkaan, (d) onko maa EU- budjetin nettomaksaja vai -saaja (Saksa vs. Välime- ren maat) tai EU:n maataloustukien suuri hyötyjä (Ranska absoluuttisesti, Irlanti ja Tanska suhteellises- ti) sekä (e) mikä CAP-uudistusratkaisujen suhde on EU:n tai jäsenvaltion laajempiin poliittisiin ja talou- 195 Vol. 7(1998): 181-196. AGRICULTURAL AND FOOD SCIENCE IN FINLAND dellisiin päätöksiin ja kehityssuuntiin, esimerkkinä Saksan ja Välimeren maiden suhtautuminen EU:n itä- laajentumiseen. EU:n poliittis-taloudellisessa päätöksenteossa Suomen pitäisi löytää samankaltaisessa tilanteessa olevia jäsenmaaliittolaisia vaikutusvaltansa lisäämi- seksi, tavoitteenaan esimerkiksi CAP:n tukimekanis- mien muuttaminen. Taloudellisesti ja poliittisesti mie- lekäs tavoite olisi, että julkinen tuki kohdennetaan tehokkaammin ja tarkoituksenmukaisemmin selvästi perusteltujen ja laajasti hyväksyttyjen kriteerien mu- kaisesti. 196 Seminar in honour of the 100thanniversary ofMTT AGRICULTURAL AND FOOD SCIENCE IN FINLAND