The Making of the European Community's Wheat Policy 1973- 8 8 : an International Political Economy Analysis

THE MAKING OF THE EUROPEAN COMMUNITY'S WHEAT POLICY 1973- 8 8 : AN INTERNATIONAL POLITICAL ECONOMY ANALYSIS Peter Whitman Bell Phillips A Thesis Submitted to the University of London, London School of Economics and Political Science, in Fulfillment of Requirements for a Ph.D. in International Relations October 1989 1 UMI Number: U041243 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U041243 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 THESES, F , OF V ^ POLITICAL * O ANO Mi yc5 \ | o Z THE MAKING OF THE EUROPEAN COMMUNITY*S WHEAT POLICY 1973-88: AN INTERNATIONAL POLITICAL ECONOMY ANALYSIS Abstract This thesis examines the political and economic changes in the domestic and international organization and operation of the European Community Common Agricul tural Policy for wheat during 1973-88. Its purpose is to demonstrate the opportunities and constraints in the agricultural talks in the Uruguay Round of the GATT begun in 1986. An international political economy approach is adop ted to bring into prominence the key security, produc tion, finance, and technology power structures and to demonstrate how these transformed the interlocking and overlapping set of bargains that determined policy. The thesis shows that throughout the 1970s the EC wheat price policy concentrated on supporting farm in comes, and this neither required nor permitted an exter nal policy beyond measures to dispose of surpluses. In the 1980s, however, prices were increasingly directed by market conditions. This reorientation was caused by shifts in the structures surrounding the wheat system. These weakened the pan-European farm lobby, and a patch work of new agreements evolved between policy makers, commodity groups, and non-farm lobbies to support an active rather than defensive export policy. Consequently, the EC set specific commercial goals for the Uruguay Round of the GATT which makes it a for midable and active participant in the negotiations. In contrast, during the Tokyo Round in the 1970s the Commun ity had adopted a strongly defensive and obstructionist posture to protect its domestic system. Examination of the agricultural trade negotiations between 1984 and 1988 confirms that the other partici pants have not recognized these transformations. The thesis concludes that the Uruguay Round could fail, and the GATT could be seriously impaired, unless negotiators acknowledge the transformed bases of the new EC wheat policy. - 2 - CONTENTS Page Abstract 2 Table of Contents 3 Forward and Acknowledgements 4 List of Figures and Tables 4.1 Abbreviations and Mathematical Notations 5 1. Introduction: Alternative Approaches to Policy Analysis 7 2. Power Structures: Wheat, Europe, and the World 33 3. Price Policy: Direction of Change 92 4. Price Policy: Proposals 106 5. Price Policy: Debate 158 6. Price Policy: National Interests 213 7. Price Policy: Decisions 255 8. Trade Policy: Defence in the 1970s 298 9. Trade Policy: Competition in the 1980s 332 10. Conclusions: Lessons for Policy Makers 370 Appendix: Wheat Price Proposals and Decisions 388 Sources for Figures 396 Bibliography 397 - 3 - FORWARD AND ACKNOWLEDGEMENTS When I arrived at the LSE I was in a predicament be cause my chosen subject cut across many theoretical dis ciplines. I would like to thank Professor Susan Strange for assisting me to sort out my thoughts. Her advice both at the beginning and throughout my research was de cisive. I also thank Michael Donelan for his efforts: he kindly stepped into the breach to see my research to comp letion. I acknowledge the time and effort expended on my be half by many individuals within the European farm policy community. Their comments were extremely useful. I esp ecially wish to thank Bob and Tanyss Phillips, my par ents, for their incisive comments. As usual, they pro vided the most useful suggestions. I must also acknowledge the following agencies for financial support: George B. Sanderson Trust, Saskatch ewan Wheat Pool, William Lyon MacKenzie King Trust, Soc ial Science and Humanities Research Council of Canada, and Committee of Vice-Chancellors and Principals of the University of the UK. Finally, I could not have started, let alone comp leted, this work without Wanda's support and encourage ment . - 4 - LIST OF FIGURES AND TABLES 1. FIGURES # TITLE PAGE 2.1 The CAP Wheat Price, Refund and Levy System 41 2.2 World Wheat Production 62 2.3 ECU vs National Currencies 73 2.4 Inflation in the EC 74 2.5 ECU-US $ Exchange Rate 75 3.1 French Wheat Prices 98 3.2 German Wheat Prices 99 3.3 United Kingdom Wheat Prices 99 3.4 Key Bargains Affecting the Wheat Price Policy 1970-79 103 3.5 Key Bargains Affecting the Wheat Price Policy 1979-88 104 4.1 Key Bargains Affecting the Formulation of Wheat Price Proposals 1970-79 111 4.2 Key Bargains Affecting the Formulation of Wheat Price Proposals 1979-89 114 4.3 French Exchange Rates 122 4.4 German Exchange Rates 123 4.5 British Pound Exchange Rates 123 4.6 Common Wheat Production and Use 141 5 . 1 Key Bargains Affecting Debate of the Wheat Price Proposals 1970-79 161 5 . 2 Key Bargains Affecting Debate of the Wheat Price Proposals 1979-88 162 6 . 1 France's Balance of Payments 227 6 . 2 Germany's Balance of Payments 238 6.3 UK Balance of Payments 248 7.1 Key Bargains Affecting Decision Making in the Wheat Price Policy 1970-79 260 7.2 Key Bargains Affecting Decision Making in the Wheat Price Policy 1979-88 262 8.1 EC Wheat Prices vs World Market Prices 303 8.2 Wheat Protection Levels in the Community 304 8.3 Average National Net Exports 314 9 . 1 EC and US Wheat Prices Compared 339 9.2 EC Surplus Wheat Production 344 10.1 EC Share of World Wheat Market 383 2. TABLES # TITLE PAGE 1 .1 Cost of Agricultural Support in the European Community: Partial Equilibrium Studies 13 1 . 2 Cost of Agricultural Support in the European Community: General Equilibrium Studies 14 - 4 . 1 - 2. TABLES (con't) # TITLE PAGE 1.3 Inter-Sectoral Transfers Caused by the EC Common Agricultural Policy 16 1.4 Common Wheat Production in the EC 30 1.5 Common Wheat Production and Use in Belgium, Denmark, Ireland, Italy, Luxembourg, and the Netherlands 31 2.1 Gross Fixed Capital Formation as a % of Gross Value Added at Factor Cost 50 2.2 National Expenditure on Agriculture 51 2.3 Investment in Tractors & Combine Harvesters 52 2.4 Total Fertilizer Usage 53 2.5 Comparative Wheat Yields 53 2.6 Relative Costs of Producing Wheat in Major Exporting Countries 54 2.7 Growth in Cereals Farms in France, Germany, and the UK 57 2.8 All Holdings producing Common Wheat in Europe 58 2.9 Proportion of Working Time Worked on Farms 59 2.10 Employment in Agriculture 60 2.11 National Agriculture Expenditure 61 2.12 Instability in World Wheat Yield & Production 64 2.13 Farm Debt in France, Germany, and the UK 68 2.14 Purchases from Non-Agricultural Sectors as a % of Gross Agricultural Output 69 2.15 Gross Value Added by Factor of Production, 1986 70 2.16 Wheat Import Export Market Shares 76 2.17 Estimated Minimum & Maximum Wheat Commitments under Long-Term Framework Agreements 78 2.18 State Trading in Wheat 79 2.19 Agricultural, Forestry and Veterinary Sciences Students in the UK 81 2.20 National Expenditure on Agriculture 82 2.21 National Expenditure on Agricultural Research 85 2.22 Consumption of Basic Foods 90 3.1 Major Changes in the Wheat Price & Inter vention System 94 3.2 The impact of market changes on the effective support for producer prices for feed wheat 97 4.1 Objectives and goals of the wheat price review 107 4.2 Disagreements in the Commission and DG-VI at the Initiation Stage, 1973-88 113 4.3 Early Commission Proposals & Council Decisions for Common Wheat Prices 116 4.4 The History of the Objective Criterion Method for Setting Prices 120 4.5 The Objective Criterion Method calculations for 1982-83 121 4.6 Impact of Green Rate Proposals on Bread Wheat Prices 125 4.7 EC Budget Expenditures 133 - 4.2 - 2. TABLES (con't) # TITLE PAGE 4.8 The Budgetary Efficiency of the CAP 134 4.9 Commission Forecasts of Cereals Production and Surpluses 144 4.10 The Guarantee Threshold System in 1983-84 149 4.11 Comparison of Wheat Prices (adjusted for green rates & yields) and Inflation 151 5 . 1 Length of Price Fixing Debates 159 5.2 Membership in the ESC 165 5.3 Commission Proposals and ESC Opinions 166 5.4 Membership in the European Parliament 176 5.5 Commission Proposals and European Parliament Opinions 179 5.6 COPA Price Proposals 193 5.7 Effect of a 5 % fall in real farm prices on farm worker incomes by country and farm size category 197 5.8 Farmer Protests in Europe (1971-88) 199 5.9 Public Opinion on the CAP (1988) 207 6 . 1 Estimates of Inter-Sectoral Transfers Caused by the CAP 216 6.2 Impact on Farm Incomes of a 20% Price Cut & Termination of the Agri-monetary System 217 6 .

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