A tale of two visions

The reformist zeal of the 15 professors in the German scientific advisory board on agriculture is remarkable, and their statement (in German) largely concurs with the declaration for ‘A Common Agricultural Policy for European Public Goods’ signed by experts from all across Europe half a year ago. The statement even goes beyond the recent proposals (in German) made by the German Advisory Council on the Environment (SRU): agricultural economists overtake environmental experts in their demands for CAP reform.

According to the scientific advisory board on agriculture, market price, direct income and farm-level investment support should be removed. There is no reason to fear a massive breakdown in EU agriculture: 61% of German agricultural area is rented out, so that large share of direct payments does not benefit farming anyway; bioenergy makes it increasingly attractive to continue farming; structural change will allow significant cost reductions to make farming more competitive; several agricultural sub-sectors are economically viable, and have been so for a long time, without receiving significant subsidies and tariff protection; the extra costs of higher EU standards are low for most farms (less than €50/ha); and targeted payments to maintain agriculture in areas threatened by undesirable land abandonment can compensate adverse effects.

Coping with fluctuating market prices will be a key entrepreneurial challenge for farmers – and not a cause for government intervention. Governments may have some role to play to address production risks that cannot be efficiently insured – especially with regard to droughts. However, adaptation to climate change falls again primarily into farmers’ responsibility, while governments should limit their activity to providing public goods (such as meteorological forecasts, research and innovation).

A sectoral approach tied to agriculture is not a suitable mechanism for regional development. Furthermore, responsibility for regional development should be shifted to lower levels of governance.

Significantly more funds should be dedicated to targeted public-goods programs. In addition to the traditional objectives of climate change and wildlife biodiversity, the importance of maintaining the diversity of the agricultural genetic pool is highlighted. It should be examined which of these public-goods policies are best integrated into the agricultural resort and which should be transferred to other ministries.

This is a world apart from the official German position, dated March 31, 2010, and agreed by the federal and Länder ministries. The ministries favor the status quo plus some more Health-Check style modifications. The two-pillar system with a strong first pillar, centered on direct income support, should be maintained. The CAP should be further simplified and remaining market interventions be reduced to a safety net. Socio-economic objectives should remain central. And the current distribution of subsidies across member states should be upheld.

When will these two worlds clash? So far, the Ministry of Economy (liberal, FDP) and the Finance Ministry (conservative, CDU) have been silent on CAP reform and left the issue largely to the Ministry of Food, Agriculture and Consumer Protection (Bavarian conservatives, CSU). But the strain of the financial and economic crisis on public budgets – together with the growing public discontentment with Germany’s responsibility to pay for the EU and other member states’ deficits – makes a showdown inevitable.

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