Ciolos hearing at the House of Commons

On 13 January, Dacian Ciolos gave testimony to the UK Environment, Food and Rural Affairs Committee on CAP reform.

Emphasis on international competition as a justification for income support

I don’t see how our agriculture can, at the same time, be competitive in the international market and have higher level of standards than farmers in other parts of the world.

But if we don’t have this minimum support for income and compensatory payments, the risk is that a lot of farmers who can be competitive without the crosscompliance rules that we have in Europe but not in other parts of the world-who in normal situations can be competitive-will not be competitive.

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Food for thought against food security concerns

World food prices are on the rise again. In December 2010, they exceeded the dramatic peak they had reached during the global food crisis in 2007/08. Add to this threatening megatrends, such as population growth and climate change, and think of recent news about the severe drought in Russia or the once-in-a-century flooding in Australia, both major staple food exporters. Who wouldn’t get an uneasy feeling that the specter of famine might come to haunt Europe again?

The European Commission has concluded in its communication on the post-2013 CAP that the CAP must preserve the EU’s food production potential, ‘so as to guarantee long-term food security for European citizens’.

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French environment ministry coming out in favour of a green CAP

In a smart move, the Ministry proposes to keep the current €10 billion CAP budget for France – thus making the proposals more appealing to its domestic audience – and it uses the budget issue as a stick/carrot: a large budget can only be justified for a green CAP.

The money is allocated to several instruments (doing away with the traditional two-pillar structure):

* €3 billion for direct income support, available to all farmers in the EU at an equal level, without any historic base. National governments could have the possibility to top up these payments. A flexible component could be introduced to soften fluctuation in prices and regional yields.

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For an Ambitious Reform of the Common Agricultural Policy

In late 2009, leading agricultural economists from all over Europe issued a declaration on ‘A Common Agricultural Policy for European Public Goods’. They proposed the abolition of market intervention and blanket income support to farmers, and outlined a more efficient, greener CAP. Since then, DG Agriculture, the European Parliament and many member states have adopted positions that closely stick to the status quo. Now a new declaration ‘For an Ambitious Reform of the Common Agricultural Policy’ has been published. All European economists who work on agricultural policy issues are invited to join the declaration online.

The declaration states:

The need for ambitious CAP reform: The Common Agricultural Policy (CAP) fails to adequately fulfill important societal objectives: to enhance biodiversity and climate protection, improve water quality, preserve scenic landscapes, increase animal welfare, promote innovative, efficient farming and fair competition in the internal market, and avoid harming farmers abroad.

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Rural development & regional policies

RuDI stands for “Rural Development Impacts” and is a consortium of 10 research institutes that has taken an in-depth look at the second pillar of the CAP, examining the rural development programs in all member states and conducting 20 case studies. In addition to calling for more effective use of policy evaluation and bottom-up processes (LEADER), they take issue with the excessive concentration of rural development on agriculture and insufficient integration with other regional policies.

They observe – and endorse – an emerging “new rural paradigm” which

is based on the notion of the multifunctionality of rural areas, where various sectors beyond agriculture are acknowledged to play a key role with regard to rural areas’ competitiveness, and where investments across sectors are considered to be a more appropriate tool than farm subsidies alone.

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Rural development & regional policies

RuDI stands for “Rural Development Impacts” and is a consortium of 10 research institutes that has taken an in-depth look at the second pillar of the CAP, examining the rural development programs in all member states and conducting 20 case studies. In addition to calling for more effective use of policy evaluation and bottom-up processes (LEADER), they take issue with the excessive concentration of rural development on agriculture and insufficient integration with other regional policies.
They observe – and endorse – an emerging “new rural paradigm” which

is based on the notion of the multifunctionality of rural areas, where various sectors beyond agriculture are acknowledged to play a key role with regard to rural areas’ competitiveness, and where investments across sectors are considered to be a more appropriate tool than farm subsidies alone.

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Which member states pay for wasteful farm income support?

So, is examination of member states’ financial net contributions a shameful exercise: hiking up national egoism and ignoring the larger benefits of European integration? Not at all. If CAP funds were spent exclusively on European public goods, such as climate change mitigation or the protection of endangered species, national bottom lines would indeed not matter. The money should be allocated wherever greenhouse gas reductions can be achieved most cheaply or where the need for wildlife protection is the greatest.

But as things stand, CAP subsidies are mostly free handouts to member states and their farming communities – they do not create commensurate value for European citizens.

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The historic roots of agricultural protectionism in Europe

Great Britain went through a protectionist phase in agriculture after the defeat of Napoleon in 1815, lasting for three decades until the repeal of the Corn Law in 1846. In food-importing Great Britain, the interruption of trade through Napoleon’s Continental Blockade had driven up food prices and farmers resisted the subsequent resumption of trade in peacetime. But the historic roots of continental agricultural protectionism, I always thought, were somewhat more recent, namely the transport cost revolution of the second half of the 19th century. As it became economically efficient to transport grain by train from the US Midwest to the East Coast, and then by ship to Europe, agrarian interests defended the higher rents on scarcer European land against the international convergence of factor prices.

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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.

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The limits of (evaluating) rural development policies

The evaluation of rural development policies has improved over the years. The current mid-term evaluation, with all member states applying the sophisticated Common Monitoring and Evaluation Framework (CMEF) underpinned by voluminous Commission guidelines, is another step forward. DG Agri is adding further tools to make evaluations even more productive, such as an Internet platform for all stakeholders involved in the evaluation process.

The philosophy of monitoring, learning and adjusting is correct – but it can lead to an excessive trust in our abilities to manage economic processes, including their social and environmental implications. We must recognize the limits of our ability to glean information about the diverse challenges on the ground, to identify the locally diverse and multifaceted effects of policy interventions, to process this information intelligently and impartially, and to draw adequate conclusions.

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