CAP REFORM, as agreed by EU farm ministers last year, should help reduce trade distortions, but will make no difference to the overall level of farm support and fails to open up EU markets to non-European producers.
“The recent CAP reform will certainly improve the performance of the EU‘s agricultural policies,” says the Paris-based Organisation for Economic Co-operation and Development (OECD) in a new report out this week (ending June 11).
“Domestic market forces will play a greater role in guiding the allocation of resources among a large range of commodities.”
As a result, the OECD forecasts a modest reduction in output with a clear movement of production from cropped land to pasture land.
It also expects to see significant extensification, especially in the density of cows per hectare.
With lower production and smaller stocks, grain prices are expected to rise over the reform period, helping to boost farmer incomes.
In the beef sector, production is expected to rise in the short term as farmers seek to reduce herd size by slaughtering more animals, leading to an initial fall in prices.
But, from 2007, actual beef production is expected to drop off, with EU market prices rising 2.7% in 2008.
But in the dairy sector, where quotas will continue to limit production, incomes are expected to fall as cuts in intervention support affect the milk price.