The CAP Health Check has been promoted by the Commission as an exercise focused on tidying up the loose ends of the 2003 Mid Term Review and adapting the CAP to an evolving set of circumstances for the period 2008 – 2013. However, this is only half the equation. The Budget Review is set to open up a much more fundamental debate on the rationale for European expenditure on agriculture, and in doing so will delve into the very heart of the CAP.
In Chicago wheat and rice prices for delivery in March 2008 have jumped to an all-time high, soyabean prices are at a 34-year high and corn prices at a 11-year peak. The agricultural commodities price rises are the result of high demand, poor harvests and low stockpiles of food.
When is a direct payment not a coupled payment? When it is an animal welfare payment. No, this is not a riddle found in my Christmas party cracker, but a response to the news that the Irish Government has just been given the go-ahead to introduce an animal welfare payment for Ireland’s 65,000 suckler cow herds. The Animal Recording, Welfare and Breeding Scheme, to give the payment its full title, will commence on 1st January 2008 and run for five years up to 31st December 2012. In return for complying with seven basic requirements, including calf registration, de-budding, castration where appropriate, a minimum calving age, appropriate weaning procedures including the introduction of meal feeding, animal events recording and taking part in a training and education course, suckler producers will qualify for an annual grant of €80 per cow, up to a maximum of 100 cows per herd (more specific details can be found here).
The Commission has proposed a 2% increase in milk quotas beginning on 1 April 2008 to apply on an equal basis to the 27 Member States. This proposal repeats the Commission’s proposal for a 2% increase in the 2003 Mid Term Review (additional to the 1.5% increase already agreed for 11 Member States as part of Agenda 2000). Member States at that time rejected the proposal but called on the Commission to report on the market situation, once the reform was fully implemented, before a final decision was taken. The Commission has also published this market outlook report which argues that the expected positive growth in demand for dairy products both on the EU and world markets offers ample opportunities to absorb a 2% quota increase.
The contribution of rising food prices to the revival of inflation in the eurozone has attracted the attention of the European Central Bank (ECB) in its latest monthly bulletin for December 2007. Eurostat’s flash estimate of inflation for November 2007 on an annualised basis is 3%, compared to an average growth rate of 1.9% in the first three quarters of 2007. This increase has been driven by recent strong energy and food price increases.
The objectives of the present incarnation of the CAP are the subject of intense debate in policy circles. Cross compliance is seen by some as a way to justify the Single Payment Scheme, by aligning the receipt of largely untargeted subsidy payments to the delivery of public goods. To some extent this is true. Farmers need to meet a set of fairly basic standards centred on pre-existing EU environment, food safety and animal welfare legislation (called Statutory Management Requirements (SMRs) in CAP jargon). They must also respect a set of baseline soil and habitat maintenance standards (collectively referred to as standards for Good Agricultural and Environmental Condition (GAEC)).
Many people are under the impression that the Commission’s Health Check Communication proposes that all Member States should move towards a flat rate regional single payment system. There is a widespread view that the Health Check would require those Member States which opted for the historic basis to begin to move towards a regional system between 2009 and 2013.
The major weakness of the Commission’s CAP Health Check Communication is its failure to spell out a rationale for maintaining the Single Farm Payment after 2013. Yet another report, this time commissioned by the European Parliament’s Committee on Budgetary Control, lambasts the lack of efficient targeting and ensuing excessive cost of the SFP system. Written by Jorge Nunez Ferrer and Eleni Kaditi of the Centre for European Policy Studies in Brussels, and not yet published, the report examines both CAP market and rural development expenditures from the perspective whether EU interventions add value, that is, whether the benefits of these policies outweigh their costs.
Economists have long been interested in the costs associated with policies transferring income support to farmers. These costs include not only the resource costs associated with distorting production and consumption choices away from the market optimum (assuming that market prices fully reflect the social value placed on resources and outputs), but also the transactions costs of administering and monitoring the policy, indirect costs associated with distortions in other markets (for example, if tax revenue has to be raised to pay for direct payments or export subsidies), as well as rent-seeking costs.
A new survey of public opinion released today by the German Marshall Fund of the United States shows strong support for ‘consumer agenda’ in EU and US agriculture policies focused on food safety, the environment and the food supply. There was significantly less support for producer-oriented priorities like providing emergency financial relief to farmers, insuring farmers against unpredictable market conditions and preserving small family farms.