whose SFP is less than that are not penalized. The budget funds saved through modulation are transferred to the Pillar II rural development fund. At least 80% of the funds from the penalties will remain in the country where the SFPs were reduced and are to be used for rural development purposes.
The increase in agricultural productivity within the EC was very rapid. While increases in the rate of agricultural productivity in the United States appeared in the 1930s, this trend didn't began until the 1950s in the EC and continued in the subsequent decades primarily due to the implementation of CAP. While protectionist policies were employed by EC member countries before the CAP was established in 1962, it has played a fundamental role in increasing the size of supply and the agricultural productivity.
Benefits and shortcomings of farm policies
Consumer benefits from price stabilization are lower probabilities of shortages and extremely high prices. A large part of gains in agricultural productivity have also been transmitted to the consumer through a long-term tendency of declining real farm prices. Food processing firms benefited from more stable supplies and prices that resulted in more efficient use of processing facilities and improved management decisions. The agricultural supply industry also benefited as farm programs constituted great incentive for investment and adoption of new technologies. For the same reasons, livestock producers also gain from grain price stabilization and government storage policies.
Despite the underlying theme of support for the family farm in both NA and the EU policies, long run effects promoted larger farms. For instance, higher price supports, benefits, deficiency payments, disaster payments and direct aids are generally proportional to output or to acreages. Between 20% and 30% of the farmers are able to capture between 60% and 80% of government payments in either the US or the EU. For instance, 70% of the direct payments of CAP during the financial year 2000 went to 16% of EU eligible farmers.
The results of US and European attempts to dispose of surplus commodities have been particularly damaging to the agricultural sectors of the developing countries. The availability of cheap surplus food from Europe and the US has made it possible for some nations to maintain urban food prices at relatively low levels. This discouraged production by their own farmers and encouraged rural people to migrate to the cities. In addition it made poor nations dependent upon American and European willingness to continue to overproduce agricultural commodities (Bonnano et al., 1990). Moreover, the modernization and intensification of agriculture that have been promoted by these policies has had damaging environmental and social consequences that have not been entirely addressed by reforms.
2.2.4 Agricultural policies in CEE countries
Three broad stages can be identified in agricultural price policy reforms in CEE countries. These began in the early 1990s with the dismantling of administered pricing, production targets and the state monopoly on trade as well as |
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the adoption of price and trade liberalization and limited intervention in agricultural markets. This was followed by an ad hoc reapplication of controls on price and market support and on trade restrictions. By the late 1990s and continuing up to EU accession by many countries in 2004, agricultural policy was dominated by the alignment of their agricultural sectors with that of the European Union, particularly to the CAP and to food hygiene and welfare standards (OECD, 2001). Structural reform was directed to improve overall performance of the agrofood sector such as investment to improve market infrastructure, to modernize plants and equipment and eliminate management inertia, as well as consolidation of holdings to ensure viable farming units which depend on a functioning land and land lease market (Cochrane, 2002)
EU support was provided to certain CEE countries for pre-accession restructuring through various programs, with the Special Accession Programme for Agriculture and Rural Development (SAPARD) being important in agriculture. SAPARD is a 7 year program which started in 2000 and allocated two-thirds of its funding program to Poland, Romania and Bulgaria.
In Russia and the NIS, reforms were required in farm-level organization and management and in the development of the physical and institutional infrastructure. Private farming had not developed during the 1990s to any substantial degree and land and rural credit markets remained ineffective as a credible commercial legal system to protect property and enforce contracts remained undeveloped (Virolainen, 2006). However in Russia, there were signs by the 21st century that vertically integrated forms of organizations were emerging. It has been suggested that any productivity gains in Russia in the short to medium term might come more from strengthening vertical ties for production and distribution rather than from real technological or systemic change because of the increasing attractiveness for investment that would result (Liefert et al., 2002).
In Russia in particular there has been "a rapid, quite fundamental change in the principles for developing agricultural production" (Virolainen, 2006). The emphasis has shifted from the family farm to supporting large, commercial farm enterprises. These enterprises form so-called agrohold-ing companies, consisting of either a single farm enterprise or a collection of individuals. These agroholdings may also be part of a larger industrial-economic grouping, such as the Alfa group, Interros, Lukoil, Metalinvest or Rusagro. These enterprises perform as vertically integrated enterprises ensuring raw material supply to group member companies and may be used to ensure the supply of foodstuffs for the core company's employees.
The political reforms that began in 1989 shifted the emphasis in agricultural policy toward developing an efficient, productive, export oriented agriculture based on comparative advantage instead of a focus on responding to basic production targets formulated by national plans with their goal of achieving self sufficiency. At the same time the role of agriculture in the post communist era declined relative to other sectors that began to achieve a relatively faster rate of development (OECD, 2001).
The reforms led to a substantial decline in agricultural production in the Central and Eastern European countries |