The fall in farm income experienced in 2009 was genuine. It resulted from falling output prices, while input prices had remained high. There is no question that the economic situation of many farms has been disastrous. All figures, whatever their sources, do show low incomes even when compared to period before the price peak 2007-2008. However, sugar prices have been high for quite a long time. Oilseed prices have remained steady. Butter prices recovered very rapidly in 2009. After two years of low prices, cereals prices recently reached levels that ensure a high return to most growers, and future markets suggest they will keep rising. Fertilizer prices went down. Still, most of the newspapers, politicians and the public opinion talk about farmers as the category being hit most by the economic crisis.

One explanation is that farmers’ organisations have been efficient at surfing on the agricultural crisis, stressing the low incomes and the need for assistance. It’s hard to blame them for “not missing the opportunity of a good crisis”. By playing the communication card on incomes – in particular to the ears of the European Parliament – they may even end up avoiding large budget cuts, if not complete dismantling of the CAP after 2013, something that was on the radar only 2 years ago. However, given the importance of the issue of farm income in the debates on the future CAP, we should be able to rely on good data. And on this issue, it is surprising to see that data on farm incomes are so poor and questionable.

One example of the crude statistics that have been put forward in the ongoing debate on the CAP is the way the Commission disseminates figures on agricultural income. I am seldom critical of DG Agri, which has an expertise that I find impressive and a political orientation (at least under the last three commissioners) that I find rather “fair and balanced”. However, I have a hard time with the graph below, which comes from a standard DG-Agri presentation (this one was given by Pierre Bascou in Paris but I suspect this is a graph that is part of all DG Agri representatives’ toolkit).

The point by DG Agri here, seems to illustrate that farmers’ incomes are low compared to the rest of the population. Hence the need for keeping agricultural policy instruments. While I can be sympathetic with the idea, I just can’t buy the figures. Indeed Spain is the only EU Member where farmers make more money than the average worker. In the EU-27, agricultural income is roughly 43% of the average income. In Denmark it is 10%. In France, it is 70%, and it is even less in the UK. And these figures are even before the large fall in income in 2009.

First, in all cases, the figures contradict fundamentally the findings of the last extensive study coordinated by Berkeley Hill at the beginning of the 2000s, by the OECD later, that compared the income of agricultural households and the average household, even if one updates this benchmark by national indexes of changes in real income over time. It contradicts the scarce national data on “professional farms” that shows that for these farmers, farm incomes are often comparable to other incomes over the period considered. Second, if farm income is only 10% of the national average, resources should be moving away from farming at a rate that far exceeds the one observed in Denmark: these figures just do not make sense from a macroeconomic point of view.
Clearly, there are several approaches to measure farm incomes. Much depend on:

- how you define a farmer (is 1 hectare or 10 beehives really enough to qualify?);

- how you measure farm labour (something done in a terrible way in the EU by the way with very crude measures such as the Annual Labour Unit, while in the United States statisticians can control for the actual number of hours working off-farm, qualification, age, gender, etc.);

- how you defined income (result of agricultural activity? Including subsidies? Including social transfers? Including rents of land leased out? Agritourism? Work carried out for other farmers? Off-farm income?);

- and which sources you start from, e.g. farm business association data or macroeconomic accounts.

I had been planning to take a deeper look at how DG Agri figures were calculated before posting anything. However, before having time to do so, I came across the recent text by Berkeley Hill, which I find very interesting. His comments are more general, but I find them particularly relevant to the DG Agri figures. He points out that the current approaches to measure farm incomes are not satisfactory, and he wonders why the different projects of measuring the income of the agricultural household have not been pursued further. I fully agree with Hill on his different points. I could also add critiques to the current approaches that he does not mention, for example:

- The EU does not do a good job with the measurement of farm income using macroeconomic accounts for methodological reasons. For example, you can pretty much get the net value added or the sectoral income you want by adopting a convention on the decay of the equipments and buildings (maximum service life, shape of the decay curve over time, e.g. geometric, linear, hyperbolic or “one hoss shay”, and if you are very smart, assumptions on the statistical distribution of the age of the buildings). All of these will affect your figure for depreciation and hence the net value added and income. There are also many possible assumptions on how you remunerate land in property by farmers, and massive assets such as plantations. For example, last time I looked at this (years ago, they may since have changed it) some member states used for the same building a depreciation period that ranged between 12 to 50 years, generating considerable differences in economic depreciation and hence in agricultural income just because of unsubstantiated assumptions. Perhaps not a big issue in time series comparisons, but so much for consistency and comparability across member states.

- Regarding microeconomic sources, the RICA (Farm Accounting Data Network sometimes called FADN) is representative of the all farm sector in some member states but much less in others. Part time farmers are not included. Large farmers refuse to cooperate and are simply not represented in some member states where collection of data is on a voluntary basis. And off-farm income is not included while it is now a major source of income in many EU agricultural households. The measurement of labour is particularly crude, with simplistic assumptions on the work of the spouse and other family labour. This is not a criticism: I am happy that this source exists since we have nothing else, and I often use it. But it hardly allows comparison of farmers’ incomes with the rest of the population.

The issue is complex and there is no simple solution from a methodological point of view. Other countries such as the United States face similar problems in defining what a farm is and what farm income amounts to. For example, USDA figures show that 87 percent of what the USDA defines as farms have less than $10 000 annually in agricultural revenue. No doubt that in the EU, such a figure would be used to show how poor farmers are. But US statisticians have managed to measure the actual income in a much more satisfactory way. And USDA figures indicate that the average household income of these farms that have less than $10 000 in agricultural sales is actually $71 000, once off-farm income and social transfers are taken into account. Something we seem unable to do in the EU, opening the door for journalists to publish dramatically low figures without the necessary precautions.

If the CAP moves towards a farm income support policy, which it did with the progressive decoupling of payments, and if farmers’ organisations stress the need for support on the basis of low incomes, one should be able to collect reliable information on farm incomes. And to see how these incomes compare to those of urban poor or other categories that are also hit by the economic crisis.

Photograph: Migrant Mother (1936) by Dorothea Lang. Lang’s photograph of a destitute 32-year old migrant farm worker and her children is among the most famous images of rural America during the Great Depression.

Around two-thirds of EU agri-environmental programme payments are classified in the OECD’s Producer Support Measure (PSE) calculations as ‘payments based on input constraints’. Such programmes would be expected to reduce EU production. Empirical attempts to measure the impact of the CAP on EU production and world market prices generally ignore their production-restraining impact and thus tend to over-estimate the world market effects of EU agricultural policy.

Salhofer and Streicher in a 2005 paper noted that the production effect of an agri-environmental programme depends on two things. The first concerns the specific conditions related to production methods or inputs that have to be fulfilled and the extent to which these conditions actually constrain production. Because participation in agri-environment programs is voluntary, there is a self-selection bias in that the most likely participants are those farmers who have no make either no or minimal changes to their farming practices. One cannot therefore just compare yields of farmer participants and non-participants in agri-environment programmes in order to measure their production effect, because the two sets of farmers will be drawn from two very different groups.

Offsetting the production limitations is the fact that additional payments received by a farmer, even though not directly connected to production, can still influence production by having an effect on the decision to continue in farming (cross-subsidization), on labor allocation, on investment decisions, and on risk perception.

Thus the impact of EU agri-environment payments on production is an empirical issue. Salhofer and Streicher examined the impact of Austrian schemes by exploiting the fact that they had two years of observations before the introduction of agri-environmental programmes (1993, 1994) and two years with the programmes in place (1997, 1998) to control for the self-selection bias. They found that participation in the more ambitious agri-environmental programmes (such as organic farming or extensive grain cultivation) had a significant negative effect on yields. However, for other programmes with lesser obligations although participation had a negative effect on yields the effect was not statistically significant.

Since that study there is further evidence that agri-environment programmes do lower yields and production in certain circumstances. Osterburg (2005) using a sample of German farms showed that cereal yields of participants in agri-environmental schemes increased less than the cereal yields of non-participants. Finger (2010) observed that cereal yields in Switzerland levelled off after 1992 following agricultural policy reforms in 1992 that introduced ecological direct payments for extensive cereal production and led to major changes in production patterns. Peltonen-Sainio et al. (2009) attribute a similar effect for Finish cereal yields to the adoption of an environmental program that aimed to reduce the environmental load of agriculture as well as to decreasing crop prices after EU accession.

Agri-environment programmes are not the only way in which EU agricultural production has been kept below its potential. Arable set-aside, milk and sugar quotas, ceilings on coupled direct payments and livestock extensification payments are other instruments that have been used for this purpose in the past. Few empirical studies took these instruments into account when modelling the impact of EU agricultural policies prior to the introduction of decoupling. These studies overestimated the impact of these policies on EU production and world markets as a result. This is not a defence of EU agricultural protectionism, but it suggests caution in making claims about the size of the potential gains, for example, for developing countries, from further CAP reform. Another implication is that encouraging EU farmers to produce more environmental public goods is likely to conflict with the aim of increasing EU agricultural production which is often advocated (mistakenly) on food security grounds.

Finger, R., Evidence of slowing yield growth – The example of Swiss cereal yields, Food Policy 35, 175-182, 2010.
Osterburg, B., Assessing long-term impacts of agri-environmental measures in Germany. In: OECD (Ed.), Evaluating Agri-environmental Policies: Design, Practice and Results, OECD Publishing, Paris, pp. 187–205, 2005.
Peltonen-Sainio, P., Jauhiainen, L., Laurila, I.P., Cereal yield trends in northern European conditions: changes in yield potential and its realization. Field Crops Research 110 (1), 85–90, 2009.
Salhofer , K. and Streicher, G., Production Effects of Agri-environmental “Green Box” Payments: Empirical Results from the EU, Paper presented at the 11th Congress of the European Association of Agricultural Economists, Copenhagen, Denmark: August 24-27, 2005.

Today and tomorrow, DG Agriculture is organising a tightly controlled, invitation-only ‘public conference’ on the future of the CAP. As someone who has previously expressed mildly dissenting opinions I’ve not been invited. It’s probably a small mercy as life is really too short to spend two days listening to an assorted crowd of farm union officials, docile civil servants and tame academics parrot the DG Agriculture mantra: ‘we need to preserve the current CAP and its budget to… protect the environment / avert mass starvation / keep farmers from committing suicide (delete as appropriate)’.

There are a few people on the speakers list who might be expected to take issue with DG Agriculture’s infamous doublethink but in a crafty move they have mostly been appointed as session chairs or rapporteurs. I’m thinking here of David Baldock, Jo Swinnen, Alan Matthews and Carlo Petrini. This quartet certainly have some good ideas on where the CAP has gone wrong and how to put it right. It’s a shame they won’t have the opportunity to present them. BirdLife’s redoubtable Ariel Brunner is there, of course, but even his powerful critique will be difficult to be heard above the massed ranks of true believers DG Agriculture has assembled.

Anyway, if you are at the conference, I’d love to hear how it’s going. Honestly.

The results are unambiguous:

“A global trend emerging from the results is the lower level of emissions per unit of product in intensive compared to extensive systems. This is mainly driven by two factors: the higher digestibility of the animals’ feed, and the higher milk productivity level… However, it is possible that production systems in industrialised countries will experience increasing emissions with intensification, as the marginal reductions in emissions from enteric fermentation may not compensate for the increased emissions from manure, fossil energy and other inputs.” (p. 52).

The results are summarised in this graphic taken from the report. Total LCA emissions are broken down between production, deforestation and processing, although in all regions production is the largest single component. Western Europe, which is the largest producer of milk, is ranked only in third place as a producer of emissions.

Estimated GHG emissions per kg of standardised milk averaged over regions and the world

There are two implications from these results. The first, given the challenge of almost doubling global food production by 2050 from a 2000 base (70% increase over 2006), is the importance of efficiency improvements in helping to offset the additional GHG emissions we would otherwise expect from higher food production. Agricultural production is highly carbon intensive. The IPCC has reported that agriculture is responsible for over a quarter of anthropogenic GHG emissions, but accounts for only about 4 per cent of global GDP. Agricultural intensification, including but not only through the use of transgenic varieties, has a vital role in limiting the carbon footprint of more food production. A recent ICTSD paper by Tybbert and Sumner discusses the range of agricultural technologies open to developing countries to mitigate and adapt to climate change.

The second consequence has relevance to the debate on carbon leakage where EU agriculture is faced with a carbon price (either a tax or cap and trade system or regulations to limit emissions). Farm groups object to this in part because, in the absence of any measures to tackle consumption, such measures could lead to the displacement of EU production to third countries which are less carbon efficient (the issue of carbon leakage). As limiting the total amount of carbon emitted to the atmosphere is the main objective, such a consequence would clearly be nonsensical. At the same time, the option of excluding EU agriculture from efforts to meet the EU’s global carbon reduction commitments is not a satisfactory option either. One way to resolve this conundrum is to impose border tax adjustments on imports from third countries deemed not to be making an adequate effort to limit emissions, but the use of trade measures as part of carbon policy remains highly controversial.

Dear Sir,

The result of this week’s vote on George Lyon’s report, ‘The Future of the CAP after 2013’, is clear evidence that the European Parliament’s Agriculture Committee is more interested in protecting the privilege of vested interests than creating a policy fit for the 21st century.

The report robustly defends the direct payment system, yet provides no evidence for its claims that direct payments help ensure European food security, meaningfully stabilise farming incomes or secure environmental benefits. All of these claims can, and must be challenged. Direct payments have virtually no link to food production and European Commission studies have shown that if they were withdrawn, food production in the EU would not be affected. Arguing that direct payments underpin food production, and food security in the EU, is therefore just wrong. Secondly, most direct payments go to a small minority of EU farmers who neither require help nor deliver most for society through environmentally valuable farming systems. The claim that direct payments support environmental service delivery is also misplaced. There is no relationship between the level of payments and the quality of farming practices. The cross compliance system, which at least attaches certain rules to the receipt of subsidies, is riddled with loopholes and poorly enforced. Reading the Parliament’s report, one gets the impression that defending the current highly skewed and unjustifiable distribution of payments is the only priority, with no regard to what these payments are actually for.

There is a clear role for the CAP to encourage and support farmers to adopt more sustainable methods of production and yet the report abjectly fails to call for this. Indeed, the Committee actually voted against an amendment which highlighted measures the CAP should support, from enriching our soils and using water efficiently to protecting carbon stores and areas of wildlife habitat. By rejecting this amendment, the Committee has sent a stark message that it does not care about the environment or the natural resource base upon which food production, and our long-term food security, depends.

The Agricultural Committee’s choice of sticking its head in the sand and protecting the status quo risks robbing the CAP of its legitimacy and sending the parliament into a dead end during the upcoming negotiations on the new EU budget. If the leaders of the European political groups are serious about giving the European Parliament a meaningful role in shaping Europe’s future, they must wake up, take the CAP debate out of the exclusive domain of the traditional farm lobby and make it finally relevant to all of society.

Ariel Brunner
Head of EU Policy
BirdLife International

Photo: © European Parliament – Audiovisual Unit

“It does not take into account farmers’ behaviour, although the past has shown that farmers do adapt to changes in the Common Agricultural Policy. It also assumes a fixed cost structure and abstracts from changes in factor prices and structural change, all elements which would reduce the impact of reform on farm incomes.”

The report makes it clear that the effect of subsidies – and their removal – is not felt evenly across Europe. In countries such as the Netherlands, Italy and Belgium the share of farm subsidies in total agricultural output is below or around 10%, in Austria and Slovenia above 30%, in Ireland around 50% and in Finland even above 60%.

The level of subsidies in the grazing livestock sector is the highest, followed by the arable sector. The horticultural sector, and to a lesser extend the wine and intensive livestock sector receive the lowest amount of subsidies related to total output. As the report puts it, “the ‘non-CAP types of farms’ (e.g. horticulture, permanent crops and intensive livestock) have, in general, better prospects than the ‘CAP types of farms’.” Unfortunately, the ‘CAP types of farm’ account for some 95 per cent of EU land devoted to agriculture and so “the deterioration of the viability of these farms as a result of the abolition of the subsidies may have a serious impact on the structure of the farm sector as well as on the vitality of rural areas.”

The report concludes:

“The viability of farms in Spain, Poland, Lithuania, Latvia, Belgium and Austria is hardly affected [by the removal of subsidies], whilst farms in Denmark, Ireland, Sweden and the UK, as well as farms of some types in France, Germany, Hungary and Slovakia are heavily affected. In these countries, abolition of decoupled payments results in a large share of farms with negative farm incomes.”

The analysis looks only at first-order impacts and makes no attempt to predict how farmer behaviour might change were subsidies to be abolished. Even so, the authors point to evidence suggesting the adaptability of agriculture to policy change. For instance, arable Netherlands reacted to decoupling of arable payments and reduction of EU sugar subsidies by growing more intensive crops such as potatoes, vegetables and flower bulbs and less cereals and sugar beet. The authors point out that European farms have long been consolidating into larger units, in response to technological change and market competition. Abolishing subsidies would speed up the existing process of ’structural change’, says the report.

Finally, the report attempts to reach some conclusions about which kinds of farms are best-placed to weather the economic storm that would come with the abolition of subsidies. The report finds that farm size has a bearing on viability but it can work in different ways.

“The direction of this relationship differs between countries. In countries such as Germany, Latvia and Hungary larger farms tend to be less vital. In these countries the cooperative farms are an important reason for this. In other countries such as Belgium, Italy, Ireland, the Netherlands and the UK larger farms tend to be more vital.”

The authors point out that the two main potential problems that would be caused by the abolition of current subsidy system – land abandonment and farm insolvency – could be addressed at less cost than at present with a more targeted approach. This is perhaps the most policy-relevant conclusion of the entire report.

Read: Farm viability in the European Union: Assessment of the impact of changes in farm payments

As national governments decide by how much they are going to pay of nurses and school teachers, how many university places they will cut and which taxes they are going to have to increase, the idea that aids to farmers are ringfenced from cuts will come as a surprise to many. But this is exactly what European leaders agreed to in 2002, in a deal devised by Jacques Chirac and Gerhard Schroeder that fixed the CAP’s direct aids budget at a constant level until the end of 2013.

The result is that the German Chancellor Angela Merkel remains committed to the deal agreed by her predecessor, in which Germany will this year put €2.4 billion more into the CAP direct aids budget than it will get out, while Greece will get €1.2 billion more than it puts in. France will remain a net beneficiary although its gains this year of €868 million are set to halve by 2013 to €409 million.

When the protection of the CAP direct aids budget does finally expire, it seems certain that something will have to be put in its place. As the CAP2020 blog reports, a new study on subsidies and farm viability finds that in the absence of subsidies 83% of farms would continue to have a positive farm income but only 18% have a positive farm income once the costs of their own labour and assets are taken into account. Previous studies have suggested that the major impact of removing direct aids is that farm asset values will fall, especially land values. From the point of view of the general public there is no harm in lower land prices, though a young farmer who has taken out a hefty bank loan to buy land or an older farmer who plans to sell his land to provide for a retirement income would be entitled to think otherwise. It doesn’t take a genius to see that the upheavals – political and economical – of an overnight abolition of the current €42 billion a year that goes into the pockets of Europe’s farmers would be such that this is a very unlikely scenario.

There is no shortage of studies pointing failings of the current system of direct aids. Two of the best are the study by Jorge Nuñez Ferrer for the European Parliament and a short paper by the academics David Harvey and Attila Jambor. An excellent new report commissioned by European Parliament looks beyond the problems of current direct aids and considers how they might be replaced by a system that is politically viable but economically rational. A hard task, you might say. The study’s lead authors are Jean-Christophe Bureau, an occasional contributor to this blog, and Heinz-Peter Witzke. I was invited in an informal advisory role along with capreform.eu blogger Alan Matthews and a handful of others.

The report is among the best contributions to the debate on the future of the CAP. It contains a very useful overview of how the various member states line up on key issues and also surveys the various proposals tabled by farm unions and environmental and other civil society organisations. As far as conclusions go, the authors back the ‘public money for public goods’ mantra that was endorsed in a joint statement by Birdlife International and the European Landowners Organisation.

Bureau and Witzke argue there needs to be a gradual transition away from the current distribution of direct aids to one which more accurately reflects the contribution of different farm types towards a variety of public goods. A flat rate per hectare income support payment would remain but should be co-financed, the authors argue, and payment limits should be introduced to very large farms, according to the number of people employed. Member states would be free to shift money from income support into public goods-type schemes. The effect of the proposed system would be considerable redistribution among current winners and losers with the general theme being more support for extensive farming systems, generally to be found in upland regions such as the alpine pasture pictured (above, right).

You can read the 167 page report in full here.

Photo credit: dr3wie // Flickr.com Creative Commons

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. This applies in particular to the Single Farm Payment which farmers receive as long as they keep their land in ‘good agricultural and environmental condition’. These minimum conditions largely correspond to the legal baseline – that is, all farmers need to do is to respect the law.

Making those who pay for this waste aware of their unfavorable position actually serves European integration. The CAP absorbs more than 40% of the EU budget, depriving the EU of the renewed momentum it could gain if it became more relevant for attaining the priorities of the future. Citizens are ready to support an EU that creates real value added – by tackling climate change, promoting European infrastructure, or enhancing internal and external security. They are never going to endorse an EU that lavishes money on one politically powerful sector to the detriment of the entire economy.

The distributional issue behind CAP reform will become ever more critical over the next years. Public debts will continue to rise and painful spending cuts will make the population more sensitive to wasteful expenditures. Also, the strain on financial solidarity in the EU provoked by the debt/Euro crisis will spur interest in the transfer mechanisms hidden in the EU budget.

So who is cutting the best deal in the CAP? And who has pulled the short straw? A short paper of mine can be downloaded here. The paper focuses on member states’ receipts of direct income support under the first pillar, which total €42 billion. These are compared with member states’ contributions to financing the direct income support. The national contributions are comprised of the contributions based on value added taxes (VAT) and gross national income (GNI), corrected for the UK rebate and other exceptions.

The most important net contributor to direct income support in 2010 is Germany with €2.44 billion, followed by Italy with a negative net balance of €1.6 billion. Other important net contributors are the Netherlands, Belgium and the United Kingdom.

The biggest beneficiaries, each gaining more than €1 billion, are Greece, Poland and Spain, followed by France, Ireland and Hungary. All these countries defend a large CAP budget and a strong first pillar. Irrespective of their public justification, the money their farmers receive from other member states’ taxpayers certainly plays a role in their love for the old-style CAP.

The net balance for all major net payers will further deteriorate in the coming years. In 2013, Germany will make a net contribution of roughly €3 billion, followed by Italy with €1.9 billion, the Netherlands with €900 million and Belgium with €800 million. The strongest deteriorations in the net balance affect Germany, France, the United Kingdom, Italy and Belgium. France sees its net gains shrink from €868 million in 2010 to less than half in 2013.

Is it advisable for the EU-12 to push for a strong first pillar with much direct income support? Clearly, the EU-12 will be much better off by shifting the money from the CAP to the EU’s cohesion funds. EU-12 member states receive a share of every € spent that is three times higher for cohesion funds than for direct income support under the CAP. The ratio for Estonia is 5, for the Czech Republic, Latvia and Romania 4 or higher, and for Poland and Slowenia above 3.

You can download the entire paper here.

However, I stumbled upon an intriguing paragraph by Findlay and O’Rourke (Power and Plenty, p. 374) that dates some continental agrarian protectionism back to Napoleonic wars: ‘in 1811, faced with the growing scarcity of sugar, Napoleon issued a decree promoting beet cultivation through a variety of means, leading to a rapid growth in the number of factories. This new industry, which eventually spread to several other Northern Hemisphere countries, would soon become dependent on government subsidies and protection, since tropical producers retained important underlying cost advantages. Indeed, government production and export subsidies became so prevalent that in 1902 nine European countries … signed the first international primary commodity agreement, the Brussels Convention, which aimed at abolishing sugar subsidies. In this sector, therefore, war time import substitution had not only a long-run effect on subsequent trade policies, but also a large negative impact of tropical sugar producers, particularly from the 1870s onwards … Between 1860 and 1900, European countries increased their share of world trade in sugar from zero to 60%. … By 1902, free-market sugar prices had declined to little more than a third of their 1880 level.’

What an outstanding example of policies’ path dependence! There is a dangerous tendency in man to rationalize the past and call for continuity. Generally it feels better to say: ‘We have done what we had to do. Now times are changing and we need to adapt by building on what we have already achieved’, than to admit ‘We have seriously messed up in the past and now we need to start again with a clean slate.’ It would be preferable to be honest and concede that agricultural protectionism – including but also antedating the CAP – was a big mistake and that we need to move on to an entirely different policy targeting sustainable land use.

Another thought that comes to mind from this historical perspective: both causes of agricultural protectionism, from the early and late 19th century, are classical examples of special interests defending their rents to the detriment of collective welfare. The idea that agricultural subsidies/protectionism originated with the food shortages of the Second World War is clearly a myth. Whilst this experience facilitated the creation of the CAP, the real driving forces of the second half of the 20th century have remained the same as ever: the sectoral interest of agriculture.

“The CAP, post 2013, is supposed by many to be required to contribute to meeting the major and diverse challenges of: global food security and climate change; environmental and land conservation and management; rural development; agrarian transition; food quality and safety; bioenergy and biofuels; regional and sectoral competitive (dis)advantages; market volatility and business risk and, no doubt, other issues as well.”

They also suggest that all of this must be achieved with a smaller share of the EU budget. Despite a wide range of contributions to the debate on the future of the CAP, the authors argue that “the critical ideas for reform still largely echo the Buckwell Report (EC, 1997), and reflect the accepted economic logic”. The issues to be addressed “can be grouped under three major policy headings: food markets; rural development; the environment” which conveniently correspond with the three widely-accepted aspects of sustainability (economic, social and environmental). This makes a lot of sense though the authors admit that

There is a challenge… to develop a coherent framework for such a Food Market Pillar. What should government (specifically the European Government) be doing that it is not doing already to secure a healthy and safe food market for its constituents?

Nevertheless, the authors strongly assert that the current pillar one of the CAP, which is dominant in terms of share of the budget, is “intellectually and logically incoherent”:

“There is no economic case for the continued, indefinite support of farmers simply because they are farmers. Payments can only be justified by associated contributions to society not otherwise compensated by the market. Furthermore, as already accepted by the Farm Council, Pillar 1 as presently constituted is not legitimate either. The wide variations in rates of payment, both between farms and between countries, bear no obvious relationship to any justifiable criterion for support.”

In a thoughtful section of the paper on the political economy of pillar one, Jambor and Harvey make two valuable observations. First, it is widely accepted that the variation in the rates of payment of direct aid “between farms and between countries” is politically unsustainable and there is a strong motivation towards greater fairness in any system of direct aids post-2013. Second, any move towards leveling out the rates of payment will lead to a significant changes to the allocation of the EU budget among member states and is therefore politically unpalatable since countries have a strong tendency to defend their own share of the EU pot. They argue that a flat rate payment system may have to be refined with “segmented rates for different regions, farm types and sizes so as to secure sufficient support in both the Farm Council and the European Parliament”.

They also address the prospect of a total phasing out of direct aids to farmers and suggest such a radical reform is unlikely. As they put it:

“There are, essentially two critical issues which prevent such a ‘radical’ change: the farmers’ legitimate concerns about whether or not they can possibly survive without ongoing support; public concerns about what the countryside and rural economies would look like in a world without support for farmers. Neither or these questions can be answered persuasively without actually seeing what such a world would look like. So both generate more than sufficient room for doubt and debate to a) substantially discourage our political system from risking such a change; b) encourage all sorts of propositions as to what might happen which can then be used to justify continued payments to avoid these market failure outcomes.”

The authors reveal their true colours as agricultural economists by coming down in favour of converting direct aids into a bond scheme, “a single, once-and-for-all payment [that] would provide farmers with a more secure capacity for the substantial adjustment and adaptation, which will be necessary for agriculture to meet future challenges.” What they fail to note is that most environmentalists dislike the bond scheme since it reduces the leverage of direct payments to achieve (modest but identifiable) environmental improvements through cross compliance, i.e. the things that farmers are required to do to qualify for aid. Politically, this is the real Achilles heal of the bond scheme.

The paper is concise, cogently argued and well worth a read: