European Parliament takes aim at CAP direct payments

A new report commissioned by the Budget Committee of the European Parliament makes interesting reading. The report, written by Jorge Núñez Ferrer (a former Commission fonctionnaire) and Eleni A. Kaditi, both of the Centre for European Policy Studies in Brussels, aims to asses whether the CAP provides ‘added value’. Núñez Ferrer and Kaditi define this as whether “the benefits outweigh the costs, not only of implementing the policy, but also the costs created in other areas.” The authors don’t pull their punches, particularly when it comes to direct payments which, costing some €30 billion a year, are by far the biggest ticket item in the CAP.

In the executive summary they state that

“the support measures of the Common Agricultural Policy score badly in terms of EU value added due to a lack of efficient targeting and ensuing excessive opportunity costs. The reason is simple: the direct payment system is based on parameters that have no link to the cost of achieving the objectives. Actual needs are largely dissociated from the financial interventions.”

They then explain why:

“Direct payments are still linked to yields per hectare in the years 1989 to 1991 or the average of three years originating from the last five years with available data before accession for the new member states, as far as national allocation of funds is concerned. As a consequence, regardless of whether they are used as income support, environmental actions, or any action of potentially high EU value, the payments do not relate well with the issues being addressed. This would be a violation of the principles of efficient public intervention and can be considered a violation of interpersonal equity principles of EU support.”

Taking in turn the various justifications for CAP direct payments, the authors first take issue with the concept of income support:

“One recurrent argument offered for granting direct payments to farmers in the EU is the need to provide farmers with income support. Otherwise, so goes the argument, many farmers would abandon agriculture altogether with large negative consequences for the environment, landscape and rural communities. It is common to have public interventions to support the income of individuals or households in financial difficulty. Income support is granted based on means testing, to ensure that support goes to those who need it. The CAP direct payments are not based on any analysis of the individual needs of farms and as such fail in targeting low- incomes farmers.”

And there’s more:

“Given the large inefficiencies of the policy in targeting low-income farmers, direct payments cannot be considered rational as an income support. With the low level of support granted through direct payments to poorer farm households, it is questionable if it is really very influential in reducing the flow of farmers out of agriculture, or rebalancing income differentials between the agricultural and non-agricultural sectors. In fact, the CAP may be exacerbating income disparities in general and especially within the agricultural sector.”

Turning next to the idea of direct payments as ‘green payments’, the authors are equally scathing:

“The size of direct payments is weakly related to the costs of cross-compliance obligations, linked as they are still to past yields at least in the overall amounts. The difference of past yields between countries and regions means that from the point of view of the practices required, farms are paid very different levels of support for similar costs. Some farms may be over-compensated, some under-compensated.”

With regard to EU biofuels support policies, the authors say that both the energy security and the climate change arguments are weak:

“The present support to the first generation of agro-fuels is hard to justify. Promoting agro-fuels as a way to reach energy independence makes little sense. In the most optimistic scenarios, domestic agro-fuels could replace only 1% of imported petroleum products. The environmental balance of agro-fuels is questionable and their positive externality does not seem to justify the current public support.”

The report is somewhat less critical of the rural development ‘pillar’ of the CAP, although they do express serious reservations about Less Favoured Areas programmes, which remain the dominant element of rural development policy:

“The most problematic aspect of the LFA is the very high flexibility in the determination of beneficiary areas and the lack of appropriate justification and monitoring of the support. The Court of Auditors (2003) has criticised the LFA payments severely, exactly because it is not possible to understand the value added of such actions.”

This report is not just interesting because of its analysis and conclusions, it is interesting because it has been commissioned and published by the Budget Committee of the European Parliament. Several members and staff members of this committee have shown an increasing interest in the CAP over the past few years, and this should be seen as an encouraging development. In the past, the European Parliament has too often delegated agriculture policy matters to the Agriculture Committee, which is stuffed with farmers, ex-farmers and the paid and unpaid stooges of the farming industry. If this report is a sign that the Budgetary Committee is preparing to take on the CAP, that is very good news.

Next Tuesday I am attending a CAP ‘brain bang’ meeting of the European Parliament’s Land Use and Food Policy Inter-Group (LUFPIG) which is chaired by Thijs Berman MEP, a founding contributor to this blog and one of the three MEPs who commissioned the Núñez Ferrer-Kaditi report (the others are Helga Trüpel and Kyösti Virrankoski). Terry Wynn, former LUFPIG chairman and recently-retired MEP used to joke that LUFPIG sounds like a flying pig and that this was not wholly unintentional. If history is anything to go by, we’ll see pigs that can fly before we’ll see reform of the CAP. But then again, if reports like this one help to stir the European Parliament into action, Terry could be proved wrong. I am sure nothing would please him more.

Read the report in full.

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3 Replies to “European Parliament takes aim at CAP direct payments”

  1. Jack,

    the study was actually commissioned by the Budget Committee and co-initiator is Green Budget Coordinator Helga Trüpel. There will be a (public) debate on the study on 2nd April 2008 in the EP.
    From what I understand the preparation of the study which is normally a technical and outsourced exercise has seen attempts by the administration to go down a different way than was foreseen by the researcher. This is a very uncommon practice.
    It is also interesting that you still cannot find the study on the EP’s website.

  2. Thanks, Jan, I stand corrected – and have amended the post accordingly. It’s next to impossible to find out what the EP is doing from looking at the website alone. And yes – a mystery why this thoughtful report is nowhere to be found. When you say ‘administration’ who do you mean?

  3. I am the main author. Thank you for your interest in the report.

    I only want to say that probably the report has not been published because there are hearings about it inside the EP and I have not officially presented it yet in the Committee. Thus MEPs have not expressed their oppinion yet. I suppose that then it will come out.

    It is true that finding reports in the website is very difficult. Maybe I will be allowed to publish it too as a CEPS report. It has happened in the past, but this will depend, if I get the permission.

    As the process of discussion is not over, I am not going to comment here on the work yet.

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