CAP – out of the box thinking

Last Monday saw the launch of a report “CAP – thinking out of the box” by the Rural Investment Support for Europe (RISE) Foundation. The report director was Allan Buckwell and the other contributors to the report are Erik Mathjis, David Baldock and myself. The report is a response to the public consultation on the modernisation and simplification of the CAP launched by Commissioner Phil Hogan in February.

Below, I reproduce a short summary of the key messages of the report.

Further adaptation of the CAP is necessary to help EU farming become a well-structured industry which is economically viable and environmentally sustainable. The next 15 years will see a generational turnover amongst farmers as millions of farmers already over 60 retire. The new generation have before them the exciting challenge of embracing the wealth of new technology based on precision, digitisation, big data and even robotics which when applied to plant and animal genetics and nutrition can raise their productivity, and thus incomes, and equip them to combine Europe’s high quality food production with high and rising environmental performance as they steward our natural resources.

Europe’s agricultural policy has a key role in assisting this transformation. This inevitably requires change to the largest instruments in the CAP, the Pillar 1 direct payments. These payments currently account for over 70% of CAP expenditure and nearly 30% of the entire EU budget. The introduction of these direct payments and their later decoupling from production were important steps in the evolution of the CAP but the impression that they offered farmers a permanent entitlement to such support was a mistake. These payments are ineffective, inefficient and inequitable. They do not serve well the purpose of income support of those most needy, nor do they serve food security, efficiency of resource use, nor the delivery of rural environmental services and moving to a more productive and sustainable agriculture. The conclusion is that they should be systematically reduced and resources switched to provide targeted assistance, including transitional adjustment assistance, to help farmers adapt and rise to the specific challenges of improving productivity, resource efficiency and risk management, and to pay farmers to provide specific environmental and other public goods. For the land management aspect of the policy this should be done by replacing the concept of entitlements with contracts for services.

It is argued that the two principal aspects of the CAP requiring most attention are land management and risk management. The third main element of the CAP, namely rural development policy is less in need of radical over-haul. It was well analysed in the Cork 2 declaration so we do not address it here. Its important functions are to raise productivity and resource efficiency by improving skills and knowledge exchange, improve farm product marketing, encourage rural economic diversification and develop rural infrastructure. Likewise we do not dwell on the constructive proposals in the recent report of the Agricultural Markets Task Force on economic relations in the food chain whose recommendations we support.

The concern about land management is that current environmental standards are not being met. Progress on containing water and air pollution, soil and biodiversity degradation, have further to go and climate protection remains a key challenge. Unless agriculture’s GHG emissions can be further cut it will be exposed as contributing a steadily higher share of total EU emissions.

Key points to remedy these concerns include: the need to set clear strategic targets for farming so that farmers can better appreciate the task that confronts them; and to clarify the trade-off in reaching a low carbon strategy whilst also paying attention to soils, water and air quality and biodiversity conservation targets. It is stressed that this cannot be achieved by the CAP alone, but general regulation, plus advice, training, R&D and institutional development are needed. Importantly, a significant part of the action must in future be contributed by the private sector.

The CAP itself should be transformed to achieve this. It is argued that more targeting of the right measures, in a programmed, multi-annual, and cofinanced approach is required. But this also requires a new culture with more attuned modes of delivery emphasising engagement of the parties rather than heavy controls, inspections and sanctions. This suggests a redesigned, more integrated, tiered structure of supports. Four such tiers are suggested: at the base level, or tier, is transitional adjustment assistance with appropriate conditionality. Building on this are successively higher, more enduring, support tiers targeting: next, the marginal areas such as areas of natural constraints, then a tier providing agri-environment and climate schemes available to most farming systems and the highest tier providing support where more specific environmental or other management is required. Not all these supports require annual payments, an important building block will be investment supports to individuals or groups of farmers.

It is critically important to note that this work cannot be achieved by the CAP alone. The long-term objective must be to internalise the environmental costs of farming into food prices so that these better signal socially aware consumption patterns too. Thus sustainable sourcing by the big players in the food chain must become more than just a Corporate Social Responsibility gesture but a demonstrable reality. This requires the active engagement of the private food processing, food service and retailing sectors.

The core argument concerning risk management is that the present approach in the CAP towards market orientation has not gone far enough. The sheer scale of direct payments dwarfs and inhibits the development of a more appropriate and more comprehensive mix of tools. The present system has too many distorting elements which inhibit farmers from better mitigating the risks they face.

Risks will be far better managed if the full range of options available to farmers are brought to bear. These include: business diversification, using spot and futures markets, better specified contracts with buyers, improving relations with buyers, where appropriate more investment in value-adding downstream, and moving towards fuller vertical coordination. We demonstrate that different instruments are appropriate for catastrophic risk versus market risk versus normal business risk. Each of these, in turn, are best approached, respectively, at policy, market and farm level. A key consideration is that other policy instruments should not inhibit or ‘crowd-out’ the deployment of this range of measures. Unfortunately, at present the existence of substantial direct payments is doing just this and therefore restricting the use of the full canvas of risk mitigation measures.

The prescriptions which emerge from this analysis are that risk prevention demands appropriate technology, information systems and training; risk mitigation requires private risk management measures some of which would benefit from administrative support; and risk coping might justify a suitably structured and financed income stabilisation tool.

The report concludes by exploring if the kind of reforms being discussed are achievable within the current EU decision structures and procedures. Following the lessons of what has been described as the ‘perfect storm’ resulting in the helpful reform in 2003 and the ‘imperfect storm’ which resulted in the less well-received 2013 reform, it is suggested that further procedural changes and more work on conditioning the climate of opinion for reform would be helpful to increase the chance of the sort of reforms envisaged in this report. The most concrete such idea is that the necessary integration and coherence of these proposals will only be achieved if they are initiated by the joint inputs of several DGs within the Commission and then negotiated by joint agricultural and environmental Parliament Committees and Councils. This would enable each DG, Committee and Council to defend their natural constituency but within an integrated procedure better allowing trade-offs to be explored and settled.

The report itself is quite short at around 18 pages. In addition, there are three stand-alone appendix chapters which can be downloaded separately.

Alan Matthews, Appendix 1 Why further reform?
David Baldock, Appendix 2 Integrating environmental land management into a streamlined CAP
Erik Mathjis, Appendix 3 Managing volatility and risk in the CAP

Or the whole 82-page report can be downloaded by clicking on this link.

This post was written by Alan Matthews

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