The Convergence of Agricultural Policy of Greece towards the Common Agricultural Policy:

Transcription

1 The Convergence of Agricultural Policy of Greece towards the Common Agricultural Policy: Lessons for the New EU Member States Nicholas C. Baltas Professor of Economics and European Chair Jean Monnet Athens, February 2010

2 1. The aim The question which I will try to answer in my presentation is, to what degree the change in the institutional framework of Greek agriculture, due to the implementation of the CAP, affected Greek agriculture. To this end, I will make a short review of agricultural policy in Greece before accession and the changes made during the transition period. Also, I will assess quantitatively and qualitatively developments in key indicators of Greek agriculture.

3 2. The role of Greek agriculture in the Greek economy Agriculture is a vital element not only in the rural economy but also in the wider national economy of Greece. Agriculture occupies the first place in terms of GDP, population and balance of trade among the old members of the European Union (EU-15). Greece s agriculture contributes in terms of GDP by 6 percent against 2 per cent of EU-15, of active population by 16 per cent against 4 per cent of EU-15 and of export by 23 per cent against 8 percent in the EU-15.

4 3. Agricultural policy in Greece before and after accession i) The main pre accession mechanisms Guaranteed minimum prices were granted to safe-guard farmers incomes against fluctuations and to promote or to discourage particular crops. Direct subsidies were granted to farmers for products to which interventions was not applied.

5 3. Agricultural policy in Greece before and after accession Input subsidies originally aimed at improving the productivity through technological advances, became eventually a cost reducing device. Import restrictions and export restitutions used for curtailing imports and promoting exports. Favourable credit conditions (plentiful credit with long pay-off periods at subsidized interest rate) provided a strong means of supporting the agricultural sector.

6 3. Agricultural policy in Greece before and after accession ii) The main after accession mechanisms The national policy was replaced by the CAP. Although the accession agreement provided for a five year transition period for most of the products, prices equalized with the common CAP prices within a two-year period

7 3. Agricultural policy in Greece before and after accession The main policy instruments have been kept in place, albeit at higher levels. Subsidies on inputs were gradually abolished. Import duties levied on products for which a common policy existed were adapted to the common EC tariff rates at the time of accession. For the remaining products tariffs were gradually adjusted within a five year-period. Certain products, known as basic products were highly protected by variable levies. The total average protection from tariffs and variable levies was increased from 15 percent of gross value added in agriculture before accession to 30 percent after accession in 1985.

8 3. Agricultural policy in Greece before and after accession Farmers have received the full subsidies provided by the CAP since The favourable credit conditions were gradually abolished. This was due on one hand to the stabilization programme initiated by the Greek government in the mid-eighties and on the other to the liberalization of the banking system since the late eighties.

9 4. Support of agricultural incomes Greece s accession to the EU has led to a significant increase of transfers from national sources and mainly from the European Agricultural Fund to the agricultural sector. While the total support of agricultural incomes was 16.3 percent of gross agricultural value added in 1980, it reached 48.6 percent in Of this, the national contribution was 6.1 percent and the remaining 42.5 percent from the European Agricultural Fund Guarantee Section (Table 1). These percentages make clear the huge contribution of CAP to the support of Greek farmer s income. From Table 2 it is noticeable that the degree of protection for most of the agricultural products follows an upward trend, with the exemption of soft wheat and beef meat.

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12 5. Agricultural production and productivity The volume of agricultural production increased by an average annual rate of 0.8 percent during the period (Table 3). Real prices of final agricultural output increased significantly in the first years after accession and then followed a downward trend which became more pronounced after the reform of the CAP in With regard to the evolution of the index of relative prices received and paid by farmers, an upward trend appeared, which became steeper after 1985 (Diagram 1). This trend was reversed after 1994, a development which Greece shared with other EU countries.

13 5. Agricultural production and productivity Despite the small increase in total agricultural output, the production of some agricultural products increased significantly after accession. This can be attributed to various factors, the most important of which is the different degree of support provided by the mechanisms of the CAP. Thus, production of hard wheat, cotton and sugar beet rose significantly due to the efficient level of support provided by the CAP (Table 3). In contrast, production of soft wheat, barley and tobacco (after the reform of the CAP) fell due to the decreasing degree of support.

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15 5. Agricultural production and productivity Average labour productively in agriculture at constant prices increased by an average annual rate 2.7 percent against 0.5 percent for the other sectors of the economy (Diagram 2). Despite this increase, labour productivity in Greek agriculture is far behind that of the EU-15, since the ratio is 2:1. In any case, these improvements in labour productivity are mainly due to the rapid decrease of the agricultural labour force and not to he increase of output.

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18 6. Impact on the trade in agricultural products Agriculture trade flows were substantially affected as a result of the application of the CAP. The new regime brough about a substantial trade diversion and a shift of imports from third countries to EU countries. This reorientation was associated with higher import prices, which contributed to the trade deficits. Thus, Greece had traditionally a positive agricultural balance of trade, which turned after the accession to negative. While, the ratio of exports of agricultural products to imports with EC was 1.4 prior to the country s accession, during the next decade this ratio had dropped to 0.72 by 1990 turning Greece into a deficit country in agricultural products.

19 6. Impact on the trade in agricultural products Greece runs a deficit mainly in beef and dairy products, which accounted 44 percent in food consumption in 1990, because Community preference. Since its accession into the EU, Greece has been importing these products from the EU countries at prices considerable higher than world prices. In contrast, Greece has a large surplus in fruit and vegetables, which, however, it could not export at high prices due to the low protection afforded to these products.

20 7. Conclusions Greece s accession to the EU impacted on the agricultural sector in several ways, mainly due to the replacement of the national policies applied prior to 1981 by the CAP. The new policy has improved agricultural incomes through subsidies and the other support mechanisms of the CAP Agricultural labour productivity has increased faster than that of the non-agricultural sector, mainly as a consequence of the out-migration of farming population rather than the rise of agricultural output.

21 7. Conclusions The implementation of the CAP had a significant impact on the composition of the agricultural product due to the different degree of support provided on various products. Thus, it favoured the typical Mediterranean products (durum, wheat, cotton, sunflower seeds, etc) at the expense of animal products (beef, dairy products), soft wheat, barley, etc. The traditional surplus in the agricultural trade balance turned into a deficit due to trade diversion and a shift of imports from third countries to EU countries.