Intervention measures of European Union on the market of agricultural commodities

The agriculture is regulated generally by majority of developed countries. This statement is particularly true when taking European Union into account. This regulation, which comes often together with high grants, is explained by seasonal character of agriculture, supporting of rural country, protection of jobs but also by existence of foreign grants and financial support. The original idea behind Common Agricultural Policy (CAP) was to increase the income of agriculture segment. That is why EU started to subsidize the agricultural products. This led to increase of production because of the fact, that the farmers made use of the subsidies and produced higher quantities. The farmers enlarged the crops areas, used intensive methods of production, extended usage of heavy machinery and invested more in processing. This resulted in increase of secondary processing business sector. This brought the basic economic problem for the farmers: higher production backed by higher subsidies resulted in overlap of supply over demand on the market, which subsequently forced decrease in price of goods. This way, the income of farmers decreased back to the original level. The Government reacted to this process by setting minimal redemption prices. Higher price would subsequently decrease number of sold agriculture commodities. This way, there occurs overproduction, which is logical consequence of regulating the system by minimal redemption prices. There exist several possibilities how to react to such a situation. Export subventions (financial support for exports and granting of export licences) mean only transferring the problem of overproduction to another country. Another "possibility" is to cut-down imported quantities by putting restriction on import, such as quantity restrictions or customs duties. The support of export makes the situation more difficult for local farmers and import restrictions could lead to retaliatory action. The last used method is a possibility of buying out of the overflowing quantity of agricultural products and its either destruction or selling these under price. In EU discussions about complex reform of CAP and the way of its financing are constantly in progress. Quality of products and support of rural country are the priorities of this complex reform. According to Author, the regulation of agricultural industry is necessary in European context, but in another way that is performed under CAP. The regulation is not necessary just because of the fact, that agriculture is a specific sphere of business, but more likely because of the need to control cheap, low-quality and dangerous products, as well as maintaining reasonable balance of migration of people from rural country towards towns. The approach of EU to market intervention is shown by the Author specifically on the market of agricultural commodities in EU and CR. According to the fact that the legislation relating to this topic is very wide, the Author used specific example of the butter market and examined the interventions on this market in detail. Market prices of butter and intervention purchases in EU countries were cross-examined. For this comparison the price levels from years 2005, 2006 and 2007 were used for the EU countries using intervention tool on the butter market. As a result of this analysis the Author declares, that he did not notice any significant differences in level of intervention prices among the EU countries. This applies to new EU joining countries as well. In the Czech Republic the State Agricultural Intervention Fund (SZIF) intervenes on the agricultural market. This Fund buys agricultural overpluses and tries to sell these commodities at highest price possible. Loss from intervention operations is estimated to be several billion Czech crowns per year. In 2005 SZIF accepted 26 offers from three economic operators and bought altogether 795,1 tons of butter. This number refers to the quantity after deduction of returned butter. The value of butter kept by the SZIF was 69,335,000 CZK including VAT. In 2006, as in 2005, buy-outs of butter were initialised by Commission as late as at the beginning of April. Again, this was caused by the fact, that the market price was by 7 % higher, in comparison to new intervention price. Between 3rd April and 15th June the SZIF accepted 31 offers from four economic operators and bought altogether 1,164.2 tons of butter. Total value of butter was 157,475,000 CZK including VAT (69,335,000 CZK from year 2005 and 88,140,000 CZK relating to 2006). In 2007 and 2008 almost no butter was purchased because of the high global market price. An important conclusion can be made in relation to result of intervention tools and its impact on consumers, producing subjects and milk processing companies. Situation on the Common EU market is dependent on successful handling of agricultural overpluses, which means dependency on global prices of milk commodities and actual foreign exchange rates (USD/EUR/CZK). And what is a most important; main beneficiary from intervention purchases is the processing industry, to which this support is not primarily addressed. Intervention purchases have nearly no impact on income of commodity first-producers as well as on the consumer prices. Liberalisation of the world trade is another area analysed in this Thesis. Liberalisation does not have to mean necessarily reduction of agricultural production, especially not in territories favourable for agriculture. It is probable, that together with increasing financial solvency of poor countries, demand for agricultural product, backed by ability to pay, will grow in these regions. These countries will not be able to satisfy this demand themselves also because of the fact, that high quantities of local agricultural production is exported. As a result, liberalisation of the world agricultural trade could help both developed and developing countries. Nowadays, within the WTO agreements, agricultural products from more than 40 least developed countries are allowed to enter European market duty free and no real threat to the Common market was noticed. Furthermore, there exists a system of non-duty licences towards third countries that results in non-European agricultural product entering European Common Market. The fact is that export of the EU agricultural production is deteriorating due to the decreasing subsidies, which is in contrast to slightly increasing import of agricultural products from non-EU countries. Sadly, this is caused also by overdeveloped bureaucratic network in EU, which is increasing the price and making EU products less competitive. According to the Author, production and consumption of cheese will grow according to changing food habits, but in future the Author expects a decrease in demand for butter and low-fat milk and these products will be relatively more exported thanks to the generally increasing world demand for these products. The production of milk will not change significantly; the number of milking cows is expected to decrease slightly and the utilisation should slightly increase. In medium-term conditions, the Author expects the generally decreased demand for milk and butter should be followed by an increased demand for milk products with higher added value