Development of risk management instruments in the EU

Kovačević, Vlado and Jeločnik, Marko (2019) Development of risk management instruments in the EU. Rural Areas and Development, 16. pp. 71-95. ISSN 2657-4403

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Abstract

The paper aims at reviewing the EU 2014-2020 CAP with regard to the risk management provisions in the agricultural sector and analyses the potential future CAP developments related to risk management in order to manage more effectively agricultural production risk, income uncertainties and market volatility. Currently, the EU farmers covered by CAP 2014-2020 have different types of risk management instruments at their disposal: insurances, mutual funds, savings accounts, hedging strategies, fiscal-tax measures and ad-hoc payments. The EU has a flexible regulatory framework to support risk management instruments, which allows coping with very diverse and heterogeneous agricultural risks faced across Member States. This framework is delineated by the CAP as well as by the rules applicable to State aids in the agricultural sector. Major weakness of the CAP 2014-2020 risk management policy is the ample margin of flexibility and optionality permitted in Pillar II that might lead to an uneven application, not only among but also within Member States. As a consequence, it can be noted that the EU does not take account of the harmonized EU-wide agricultural risk management scheme. The types of and extent to which risk management tools have been adopted differ widely across Member States. The EU support in development of agricultural risk management instruments has huge perspective, mainly based on two factors. Firstly, climate change is expected to continue and affect the agricultural production even more severely. Secondly, the World Trade Organization, under certain conditions, allows for support of risk management, providing an opportunity for long-term government support. Under the new CAP, the EU risk management policy should be more harmonized among the Member States.

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