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The Luxembourg Common Agricultural Policy Reform and the European Food Industries: What's at Stake?

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  • Alexandre Gohin
  • Laure Latruffe

Abstract

On June 26, 2003, the European Union (EU) adopted a new reform of its Common Agricultural Policy (CAP). Its boldest measure is the creation of a Single Farm Payment that will replace most of the present direct payments. We address quantitatively three issues raised by this new reform, using a computable general equilibrium model that allows us to measure the impacts on the food industries as well as their role in the transmission of impacts along the food chain. The first issue examined is whether this reform helps the EU15 to remove the controversial export subsidies. Our numerical results show that this reform effectively reduces the amount of export subsidies but without removing them. Our second concern lies with the production and trade distortion impacts of CAP direct payments. We investigate this issue in the case of full decoupling, as well as partial decoupling as chosen by EU15 Member States. We find that they have rather similar effects on production and trade. Finally, we explore the employment effects, and findings indicate that this reform leads to a significant decline of farm labor and, by contrast, to a very modest impact on the employment level by food processors. Generally, food industries are only marginally affected by this CAP reform. L'Union européenne (UE) a adopté une nouvelle réforme de sa Politique agricole commune (PAC) en juin 2003. La mesure la plus audacieuse a été la création d'un paiement unique par exploitation pour remplacer la plupart des aides directes actuelles. Dans le présent article, nous avons examiné trois questions soulevées par cette réforme à l'aide d'un modèle d'équilibre général calculable qui nous a permis de mesurer les répercussions sur les industries alimentaires de même que le rôle de ces industries dans la transmission des répercussions dans la chaîne alimentaire. La première question visait à déterminer si cette réforme permettait à l'UE‐15 d'éliminer les subventions à l'exportation controversées. Nos résultats numériques ont montré que la réforme diminuait effectivement ces subventions sans toutefois les éliminer. La deuxième question portait sur les répercussions des paiements uniques de la PAC sur la production et la distorsion des échanges. Nous avons examiné cette question en utilisant le découplage total et le découplage partiel retenu par les États membres de l'UE. Nous avons trouvé que les effets sur la production et les échanges étaient plutôt similaires entre les deux options de découplage. Enfin, nous avons évalué les répercussions sur l'emploi et nos résultats ont indiqué que cette réforme entraînait une baisse significative de la main‐d'œuvre agricole contrairement à de très faibles répercussions pour les entreprises de transformation des aliments. En général, les industries agroalimentaires ne sont que légèrement touchées par cette réforme.

Suggested Citation

  • Alexandre Gohin & Laure Latruffe, 2006. "The Luxembourg Common Agricultural Policy Reform and the European Food Industries: What's at Stake?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 175-194, March.
  • Handle: RePEc:bla:canjag:v:54:y:2006:i:1:p:175-194
    DOI: 10.1111/j.1744-7976.2006.00044.x
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    References listed on IDEAS

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    1. Hertel, Thomas W. & Keeney, Roman & Valenzuela, Ernesto, 2004. "Global Analysis Of Agricultural Trade Liberalization: Assessing Model Validity," 2004 Annual meeting, August 1-4, Denver, CO 20199, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    1. Štefan Bojnec & Imre Fertő, 2008. "European Enlargement and Agro‐Food Trade," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 563-579, December.
    2. Viaggi, Davide & Raggi, Meri & Gomez y Paloma, Sergio, 2011. "Farm-household investment behaviour and the CAP decoupling: Methodological issues in assessing policy impacts," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 127-145, January.
    3. Gohin, Alexandre & Bureau, Jean-Christophe, 2006. "WTO Discipline and the CAP: the Constraints on the EU Sugar Sector," Working Papers 18872, TRADEAG - Agricultural Trade Agreements.
    4. Loizou, Efstratios & Karelakis, Christos & Galanopoulos, Konstantinos & Mattas, Konstadinos, 2019. "The role of agriculture as a development tool for a regional economy," Agricultural Systems, Elsevier, vol. 173(C), pages 482-490.
    5. Rude, James, 2007. "Production Effects of the European Union’s Single Farm Payment," Working Papers 7335, Canadian Agricultural Trade Policy Research Network.
    6. Gracia, Azucena & de Magistris, Tiziana & Casado, Jose Maria, 2008. "The Effect Of The New Single Farm Payment In Irrigated Agriculture: The Case Of Spain," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6590, European Association of Agricultural Economists.
    7. Psaltopoulos, Demetris & Balamou, Eudokia & Skuras, Dimitris & Ratinger, Tomas & Sieber, Stefan, 2011. "Modelling the impacts of CAP Pillar 1 and 2 measures on local economies in Europe: Testing a case study-based CGE-model approach," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 53-69, January.
    8. Gohin, Alexandre, 2006. "Assessing the 2003 CAP Reform: Sensitivity to the Decoupling of Agenda 2000 Direct Payments," Working Papers 18868, TRADEAG - Agricultural Trade Agreements.
    9. Gohin, Alexandre & Bureau, Jean-Christophe, 2006. "Bridging Micro- and Macro-Analyses of the EU Sugar Program: Methods and Insights," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25799, International Association of Agricultural Economists.
    10. James Rude, 2008. "Production Effects of the European Union's Single Farm Payment," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(4), pages 457-471, December.
    11. Antonioli, Federico & Santeramo, Fabio, 2017. "Vertical Price Transmission in Milk Supply Chain: Market Changes and Asymmetric Dynamics," 2017 Sixth AIEAA Conference, June 15-16, Piacenza, Italy 261256, Italian Association of Agricultural and Applied Economics (AIEAA).
    12. Gelan, Ayele & Schwarz, Gerald, 2011. "Estimating the effects of single farm payments on multi-output agricultural production function," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 12(2).
    13. Antonioli, Federico & Santeramo, Fabio Gaetano, 2021. "On Policy Interventions and Vertical Price Transmission: the Italian Milk Supply Chain Case," MPRA Paper 106035, University Library of Munich, Germany.
    14. Fogarasi, József & Kristkova, Zuzana & Ratinger, Tomáš & Rokicki, Bartłomiej & Tóth, Kristóf & Wieliczko, Barbara, 2013. "Assessment of the impact of the EU "agricultural budget" for the period 2014-2020 on the financial situation of the national agriculture and the entire economy," Multiannual Program Reports 179499, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    15. Ratinger, Tomas & Kristkova, R., 2012. "Rural Economies and ahe Pillar 2 Budget Debate: A Regional Perspective," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(4), pages 1-11, December.
    16. Karine Daniel & Maureen Kilkenny, 2009. "Agricultural Subsidies and Rural Development," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(3), pages 504-529, September.
    17. Psaltopoulos, Dimitrios & Phimister, Euan & Ratinger, Tomas & Roberts, Deborah & Skuras, Dimitris & Santini, Fabien & Gomez y Paloma, Sergio & Balamou, Eudokia & Espinosa, Maria & Mary, Sebastien, 2011. "An Ex-ante Rural/Urban Analysis of Common Agricultural Policy Options," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114780, European Association of Agricultural Economists.

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