Курсовая работа: The UK as a member of the EU

As a result, during the period 1972-86 the total volume of UK agricultural output grew by more than 20 per cent, while the share of food and agricultural imports in the real value of UK imports jumped from 40 to 60 per cent, with adverse welfare and balance of payments effects arising from 'trade diversion', the switch from low- to high-cost suppliers. Not surprisingly, the CAP is regarded by UK consumers and taxpayers as a device by which the EU generously subsidizes inefficient (French and Italian) farmers from the EU budget—to which they complained that they made excessive contributions.

2.2.4 CAP inconsistencies

However, the good times for the farmers did not last long. The entry of the UK into the EU coincided with the rise in the price of oil, which caused a long period of inflation and unemployment. From the mid-1970s, despite increases in the volume of output, farm incomes fell as CAP support prices failed to keep pace with inflation in input prices, such as increases in the real cost of labour, interest payments, and rents. Inevitably, these effects changed the structure of UK agriculture; for example, in the first ten years reducing the dairy farms by 50 per cent, the cereal farms by 30 per cent, and the employment of farm labour by 25 per cent. At the same time, increasing EU budgetary expenditure, mounting surpluses of agricultural output, and international pressures by agricultural exporting countries induced several attempts at reforms. Those inspired by mainly budgetary constraints, such as 'milk quotas' and 'co-responsibility levies', were supply controls based on previous volumes of production and attempted to alleviate the budget crises by penalizing excess production without correcting price distortions which continued to inflict high welfare losses. [11, p.47-50]

2.2.5 The 1992 and 1999 reforms

In 1992, the MacSharry reforms (named after the European Commissioner for Agriculture, Ray MacSharry) was the first significant reform of the CAP. Support prices were reduced and compensatory “direct payments” were introduced. These compensatory payments are still being made today – around €18 billion a year of direct payments date back to this first reforms.3 similar reforms occurred in 1999, but the next major step was taken in 2003 when the link between direct payments and production was broken. This reduced the negative economic impact of the payments, and made receipt dependent on meeting minimum standards of good agricultural and environmental condition. [1, p.19]

Although with these reforms the EU took a big step towards market liberalization, the process of change was slow, and this triggered the need for further reforms. The new agreement for CAP reform was signed in 1999.

The new reforms extended the direct farm payments and the cuts in support prices by as much as 50 per cent. They also attempted, but without success, to ease the 'budgetary imbalance' of the big contributors to the EU budget—Germany, the Netherlands, Austria, Sweden, and the UK—by a partial 'renationalization' of farm spending which would have cut CAP's income support from 100 to 75 per cent, the members paying the balance to their own producers. [11, p.51-52]

2.2.6 The 2003 reforms

The next major step was taken in 2003 when the reforms aimed to ‘decouple’ direct payments from the production activity. This reduced the ‘production for subsidy’ link of the payments, and made receipt dependent on meeting minimum standards of good agricultural and environmental condition—the so-called ‘cross-compliance’ conditions. The centerpiece of the 2003 reforms was the ‘Single Payments Scheme’ (SPS), aimed at simplifying all the disparate product-specific area and headage payments into one single payment per farm. [13, p.7]

The basic elements of the new CAP:

• The CAP consists of a 'single farm payment', independent of production.

• The full granting of the single farm payment and other direct payments are linked to a number of statutory environmental, food safety, animal and plant health, and animal welfare standards ('cross-compliance') which will also contribute to the maintenance of rural landscapes.

• There are revisions to the CAP policy by price cuts for most of the products of key sectors traditionally supported (such as cereals and dairy products).

• Direct payment for bigger farms is cut ('digression') to generate additional finance for the new rural development policy.

• A mechanism for financial discipline will be introduced to ensure that the farm budget remains fixed until 2013.

• Countries, such as the UK, that wish to apply further radical reforms are allowed to do so.

The reforms entered into force in 2004-2005. [11, p.52]

2.2.7 The 2007-08 CAP Heath check

In May 2008 the European Commission produced a substantial set of proposals for change to the CAP. These proposals, which required three separate legislative measures in order to implement and was at least partly opposed by some Member States, reflect the outcome of consultation and the fast-changing global food market in which prices have been rising sharply.

Rising economic prosperity in India and China and a growing world population have contributed to a global shortage of food, notably cereals and rice. Between September 2006 and February 2008, for example, the prices of wheat rose 96 per cent and dairy products by 30 per cent. The first part of the EU’s May 2008 package dealt with immediate measures to tackle the shortage of supply (and the concomitant rise in food prices). These included lifting all tariffs on imported cereals, abandoning set aside for arable crops and the scrapping of milk quotas by 2015.

Rising food prices are an opportunity to move away from producer support to a more market orientated system as higher prices make subsidies unnecessary in many sectors. A strengthening of competition through the scrapping of things like milk quotas, the simplification of administration to reduce the bureaucratic burden on farmers and allowing Member States more flexibility in implementation would all help to reduce the regulatory impact of the CAP.

If adopted, further changes will mean a reduction in the number of very small farmers who receive subsidies; at present there are a large number who have less than a hectare of land and who receive a few hundred Euros each year in payments that cost more to administer than they are worth.

2.3 Economic and Monetary Union

2.3.1 European Monetary Union: reasons and history

For establishing an integrated competitive market which by common prices would lead to the optimal allocation of resources, increase welfare, and promote economic growth, the EU has adopted four fundamental principles:

· Free trade in goods

· Free trade in services

· Free mobility of capital

· Free mobility of labor