Preparing the next CAP reform

Written by Sophie Bolla on 10 November 2016 in EU Monitoring
EU Monitoring

On November 8, the AGRI Committee held a workshop entitled: Reflections on the agricultural challenges post-2020 in the EU: preparing the next CAP reform.

Czesław Adam Siekierski (ECR, PL) explained that the meeting would start with a workshop on agriculture challenges post 2020 in the EU. The idea is to prepare for any future changes the EU may want to make to the CAP. He added that he did not want to use the word reform because he does not know how it will happen or when. A debate on the future of the CAP is necessary and certain Member States have already submitted their own ideas like The Netherlands and France. He also mentioned the Cork 2.0 conference in September, which took a look at a broader and more modern approach when it comes to the future of rural development. The European Parliament is going to play a very important role in any changes made to the CAP and MEPs have to give thought to the future of the CAP and needs to listen to experts as well.

The workshop will be structured in 3 parts:

  • The future of direct payments
  • The future of market measures and risk management schemes
  • The future of rural development

Part 1: The future of direct payments

Professor Emeritus Alan Matthews, Trinity College Dublin, Ireland said that direct payments account for 72% of the CAP budget and 30% of the entire EU budget. They are central to the debate on the future of the CAP. Recently, greening payments have been added to direct payments. However it seems that few stakeholders are happy with this reform. Supporting innovation and competiveness, encouraging generation renewal, improving sustainability of agriculture practices, increasing the resilience to climate change while contributing to mitigation, preparing farmers to better manage risks, promoting biodiversity and the role of agriculture in rural areas are some of the key challenges to address.  He added that in the future the changes made will be based on the budget allocated to the CAP in the next budget.

He then presented different possibilities saying that the AGRI Committee could implement some changes in the future CAP. He presented three scenarios:

  • Small changes to the last reform: the debate on defining an active farmer would continue, MEPs could discuss altering the greening payment rules
  • A farm-focused reform: directed by the last US Farm Bill, the CAP would follow in this direction by changing direct payments to counter-cyclical payments.
  • Revisiting greening: the Committee accepts the current structure of the CAP but wants to improve environmental and climate outcomes by implementing conditional greening

The questions to be asked about the current CAP are multiple, he said. Is the current system of direct payment fit for purpose? Does it provide support to productivity? For him, they make some contribution but they cannot be a sufficient solution. If Committee members were to design a CAP from scratch, he does not think that people who agree that direct payments would be the most sensible approach. Therefore he proposed a bolder strategy approach:

  • Listen to the OECD when they stated that agricultural policy should be transparent, targeted to specific outcomes, tailored to the desired outcomes, flexible, consistent with multilateral rules and result oriented.
  • The two-pillar structure should be changed. In the 2013 CAP, he noted, Member States can shift resources between the two pillars. It would make sense to have a single pillar II type framework.
  • All future CAP spending should require co-financing by Member States. Member States need to be incentivised to use EU funds the best way. For this, there should be strong State aid discipline and guidelines.  

Decoupled payment area based direct aid should be phased out, he added. There are clearly important tools for income in many farms so this would need to be a long-term phase out. It is important to set the direction of travel so that farmers making investment have a clear idea of the future policy environment.

He mentioned the need for farmers to be rewarded for protecting biodiversity or mitigating climate change. Support can be awarded for quality production as well, he said, quoting organic farming and high animal welfare standards. However agriculture policy should tackle this directly. This would be targeted payments, he said. When farmers are paid for good farm practises it is natural that the customer will want to verify this.

On the role of cross-compliance if direct payments were to be phased out, he said that all farmers who benefit from CAP payments should be obliged to observe cross-compliance standards. Cross-compliance and greening should be replaced by conditional greening. The merit of this proposal is that it reunites greening practices and cross-compliance in a single scheme. It gives flexibility to Member States to design scheme that are appropriate to their local areas. Requiring co-financing of all CAP payments requires Member States to think hard about this scheme. He also said that the allocation of funds to Member States should be partly performance based.

The current system of direct payments is neither effective, efficient nor equitable and it is not the greater use of taxpayers’ money, he concluded.

Part 2:  The future of market measures and risk management schemes

Professor Emeritus Louis-Pascal Mahé, Agrocampus Rennes, France said he wanted to talk about measure market intervention. He explained he would first talk about price instability before taking in all the CAP measures that aim to address this.

On price instability, he said that the structural changes in farms in Europe make farmers more vulnerable to price instability. European agriculture is far more integrated in the world market but that is a two way street. Through tariffs and customs measure EU farmers are very sensitive to world prices. The situation of Europe’s own agricultural market has also a big influence on the world market because Europe is an important agricultural power.

Agreements that aim to regulate agricultural products have never really worked so there is an incentive for Member countries to go their own way and therefore the whole construct fails. There is no political desire to coordinate. The GATT negotiations and the 1992 CAP reform let the OECD to say that EU the goes towards the path of deregulation but it is not the case in other countries such as the USA. In the US but also in emerging economies they have incentives to produce. In America they have commodity programmes and insurance programmes that are so complex that it is difficult to make sense of them. These programmes are terribly ineffective and costly. They tend to create twisted incentive such as pushing people to specialise, which lead them to being more vulnerable. The farmers must participate in risk management programmes.

Talking specifically about the dairy crisis, he said that it was due to internal factors. His impression is that developing production is responsible for 2/3 of the crisis while the Russian ban is responsible for 1/3. The political reply was kind of sluggish, he argued. The reserve for crisis was not used to address the short-term crisis. He thinks this was a mistake and it reveals an institutional weakness. On the amount of money that has been distributed (1 billion in total), he noted that it was paid out based on the right of quotas. This did not send a message that we will help people diversify for the future. The EU is not paving the way for the future. Compulsory reduction in 2015 would have had a beneficial effect with no budgetary costs, he explained. In March 2016 it was decided to have voluntary reduction put through the subsidiarity principle. This decision could not occur without a subsidy and it created free riders. Those who reduce production without subsidies do this benefiting the producers in another Member State that has not decided to reduce production. Only a programme that is EU-wide can hope to reduce production. Here subsidies would not be necessary because prices would go up.

He added that subsidiarity in market measures tends to lead to free rider behaviour and is a failure in economic policy. He added that the EU needs to realise that the stakeholders had a demand for intervention. Intervention happens when the crisis is real, when it is too late. The main concern is to avoid a drop in prices, which is not volatility as such. Direct payments do not play a serious role in stabilising income; it has a perverse effect adding to high prices, which creates instability for income for farmers. He also said that using the reserve should be linked to changes as well. Market measures can be effective but the question is, are they effective economically compared to how much you spend? He added that public storage cannot be a permanent situation for farms with the lowest costs. A lot of work remains to be done to fine tune the measures that would help stabilise farmer income.

It is necessary to introduce potential conditionality and to establish the connection to direct payments. They should depend of the participation of farmers in the risk stabilisation system and market measures such as production reduction when requested by the EU. The measures set up by Europe need to correspond in time throughout the production cycle and to cover price booms and price drops. Political institutions should focus their attention on establishing rules for market measures under the “veil of ignorance”. One needs to organise direct payments. He suggested creating an independent agency to manage markets during the budgetary period and the institutions would then be able to focus on designing rules by giving a mandate to rewrite how the CMO is going to look. 

Part 3:  The future of rural development

Thomas Dax, Federal Institute for Less-Favoured and Mountainous Areas, Austria said that the main focus of his presentation would be taking a look at how to take on the full potential of rural development. There is an analysis of rural development programming and there is discussion about how this should be further developed in the study, he explained.  

It is important to look at:

  • The historical development of rural development
  • The current implementation
  • The needs of rural areas and regions and strategy building.

There has always been a lot of discussions about the link between Pillar I and II in the CAP. It is going to be even more important to take into account the societal changes in rural areas as well as the importance of climate change. Other changes are taking place that are economic in nature. It is important to try and develop polices which have a positive impact on the lives in rural areas.

Talking about the implementation of current policies, he explained that regions and Member States have implemented the policy. Efforts are being made to cater all different types of rural regions. There are various programmes and flexibility exists. It is important to take into account ecological challenges. He talked about the issue of farm abandonment and regions with natural constraints. Today’s programming is mostly based on Europe 2020’s objectives. These priorities are important when it comes to implementing rural development. He thinks it is important that there is more reference to land use. Under the current period there is also the possibility to have sub-programs for young farmers, mountainous areas, he added. There are considerable differences on how the Member States implement this, he noted.

On the post-2020 era, he said it is important to look at the effectiveness of the instruments, especially bearing in mind any future EU goals. Are disparities between different rural areas catered for? The current structure does try to take account of the specific priorities.

Talking about the Cork Conference in Dublin, he said, that it addressed many demands from the rural regions. The first six objectives of the Declaration fit in with the overall context of this discussion, he noted.

He then presented 5 options for the future of rural development:

  • Focus more on the CAP objectives and ensure more coherence between the two pillars
  • Enhanced status quo with adjustments
  • Further territorialised Pillar II with a more territorial approach
  • A territorial “multi-fund” which would look at agriculture, rural development and cohesion.
  • A rural cohesion policy which would introduce a new concept

He feels that there has to be a more balanced view of rural development policy and that would have to take into account:

  • The objectives of the rural regions
  • Adjustments which cannot be imposed top down
  • The change of the rural landscape (quality of life, guarantee of supply, sustainability…)

There is a momentum at the moment in rural development that has to be ceased and lawmakers have made the most of it, he stated. Social measures have to be improved and strengthened. This is going to require a minimum of financial support. What is more important is to guarantee that the EU has the right kind of administrative rules. There is a need for greater participation and rural development must benefits all inhabitants. Measures have to have an impact in terms of sustainable development and national economies.

He then presented key principles for further reforms:

  • They should think in terms of quality of life and making rural areas more attractive
  • They should include all groups of populations
  • They should look at spatial planning
  • They need to give thought to the correct level of government

 

If you are interested in reading the full briefing, please sign up for a free trial of the Dods EU Monitoring service.

About the author

Sophie Bolla is the consultant for food and agriculture at Dods EU Monitoring

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