Gunfight for CAP Budget Money

It has been clear for some time that most of the key issues of the CAP reform will be negotiated upon in the framework of the negotiations on the Multiannual Financial Framework (MFF) by foreign ministers and heads of state of the EU Member States. The Danish Presidency prepared a special document – a Negotiating Box, which should define all the negotiating issues and facilitate the conclusion of negotiations. The negotiations have thus started to heat up, negotiators have presented their arguments and formed the clubs of like-minded countries. Before the negotiations culminate, expectedly at the turn of 2013, we shall try to define the positions of individual actors on the key issues and speculate on the possible outcome of negotiations on the basis of the available sources (Agra Europe, Agra Focus, internal positions of Member States). 

Two major groups have been formed in the negotiations on the MFF, which is manifested in common meetings and statements. A group of net payers comprises of 10 Member States (AT, CZ, DK, FI, FR, DE, IT, NL, SE, UK, all of them except CZ net payers). It is known that this group wants to reduce the proposed volume of the MFF by 10 % or by around EUR 100 billion, i.e. from 1.11 to 1.0 % of the EU GNI. On the other hand, there is an informal group called Friends of the Cohesion, comprising of new EU Member States (including CZ, which takes part in both groups) and southern European Member States – GR, PT, ES, all great beneficiaries of the cohesion funds and currently in a strained economic situation. All friends of the cohesion except CY and ES are net beneficiaries from the EU budget and advocate the preservation of the volume of the budget as proposed by the European Commission.

CAP conservatives are prevailing

However, the groups are not as homogenous as it could be expected. They differentiate largely on the issue of where the savings should be made. It has probably been clear to all participants that the Commission’s proposal cannot be preserved as it is. The EU is in a difficult financial position and something has to be made also in terms of the budget. No doubt, the funds for competitiveness will be at a loss. But this will probably not be enough. The key issue in the negotiations on the MFF is thus whether to save funds on the Cohesion or Common Agricultural Policy (mostly Pillar I), as these are the two EU policies taking up most of the EU budget. Member States are thus further divided into new groups manifesting also the special power of agricultural interest groups.

The first block – the CAP conservative block consists of the countries which believe that the Commission has already gone too far by nominally freezing the amount of budgetary resources and that any further reduction is out of the question. In this block, there are the net payers and traditional supporters of the CAP: FR, ES, IE, BE, DE, AT, as well as net beneficiaries with very strong agriculture, strong agricultural interest groups or perhaps even with problems drawing on cohesion funds (RO, BG, HU, SI).

Another issue for the conservative group of old Member States is the proposed reduction of direct payments (convergence of payments) for those with high payments, where most of these countries belong to. These countries strive for the lowest possible reduction of payments for the countries with above-average amounts per area. Some of them advocate a partial preservation of historical payments and thereby smaller convergence among agricultural holdings also after the expiry of the MFF (e.g. PT, IE), other highlight the pointlessness of the equal amount of payments for arable land and grassland and therefore propose various levels of payments in terms of land use (AT, SI).

The second block – the CAP liberal block supports considerable cuts in budget expenditures. This block has been traditionally guided by the UK, and consists also of SE, NL and DK. They brought to the negotiating box a proposal that the resources for the Pillar I of the CAP should be gradually reduced over a certain time period. This of course strongly upset the conservative block and led to further polarisation of positions.

There is a group of countries in-between the two blocks, which is ready to consent to the reduction of the CAP Pillar I funds, but mostly in order to reduce the pressure on cohesion and rural development policy. In this group one can discern PL, as well as CZ, PT EE, LV, LT. This group even enhanced the liberal positions on the CAP funds. They would even be prepared to accept the reduction of Pillar I funds (of course, mostly direct payments) if the countries with below-average level of direct payments are excluded from the gradual reduction. By this proposal, this group of countries complemented their previous position to the proposed convergence of direct payments. So far, the members of this group, joined also by HU, BG and RO, criticized as insufficiently ambitious and thus unacceptable the Commission’s proposal of a partial rise of payments for the countries benefiting from below-average (below 90 %) amount of payments per area.

CAP reform issues mitigated

The next issue of budgetary negotiations is the greening of direct payments. According to the Commission’s proposal, it would be compulsory to implement special measures for the greening of agriculture for 30 % share of direct payments. Political positions of all Member States have been reserved. The administrative burden of the measures as well as their actual impact on the environment is questioned. Most countries would be ready to accept the proposal, if it was either non-compulsory or the share of direct payments was lower, or if its implementation was simpler and adapted to different situations in Member States.

Another contentious issue is capping of direct payments. The greatest opponents are the countries with predominantly large holdings (e.g. UK, CZ, FR, SK, HU, as well as DE). The main argument is that the measure hampers the competition of European agriculture. But the fact is that most countries support the capping measure or at least have no serious objections.

An interesting detail of the budgetary negotiations is that the volume of funds for Pillar II – the rural development policy is not clearly defined down to the level of Member States. Like in the past budgetary negotiations, it seems that the distribution of these funds will serve for the eventual balancing of the amounts among the Member States and reaching of the final compromise. It is the part of the MFF which will most probably not be agreed upon by the very end of negotiations, as many Member States make it conditional on the amount of funds for direct payments and cohesion policy. Two groups of countries support strong rural development policy; firstly, there are countries which have so far benefited from these funds and see it as an important source of development funds (e.g. AT, SI, FI, MT, PT, CY) and secondly, there are countries which place Pillar II ahead of Pillar I (e.g. UK, SE, CZ). The methodology of distribution of these funds among Member States is in any case still unclear. Economically less developed members strive for objective criteria of distribution (economic development, size of agriculture) and not so much for criteria of the past performance. On the other hand, the largest relative beneficiaries of these payments insist on the past performance criteria, in particular SI, FI, AT, MT.

The CAP reform will no doubt lead to a drop in the overall amount and a redistribution of funds among the Member States. Therefore, a number of countries, including the most influential F and DE require joint negotiations on the two CAP pillars. Mostly the western part of Union sees the distribution of rural development funds in the light of possible compensations for the losses in 1. Pillar direct payments. Of course, there is the opposite side here too, which claims that these two pillars of agricultural policy have different goals and can therefore not be compared in terms of the envelopes per ha; this is why joint negotiations are not possible. Some countries also insist that no country should lose in both pillars.

All about net financial positions  

Although it is rather risky to predict the outcome of negotiations, there are some signs indicating the possible direction of final solutions. The available overall amount of the EU budget will be smaller than that proposed by the Commission. Mainly, it will be probably at the expense of the funds for competitiveness. But this will not be enough. When choosing between cohesion and agriculture, it will most probably be the cohesion policy that will come off worse, given the balance of political and economic powers; an important part of the net payers namely support the preservation of funds for Pillar I. It is more likely that the funds for Pillar II will be reduced. The final distribution of Pillar I resources among the Member States will most probably be close to the Commission’s proposal, but the losses of the old Member States will be compensated for by the rural development policy. The other CAP issues, such as greening and capping, will be most likely watered down already during the budgetary negotiations, and further on during the negotiations on the CAP regulations at the level of agricultural minsters, which will apparently be concluded at a later stage.

Let us conclude by saying that also this time negotiations on the EU budget are mostly a (gun)fight for preserving or improving the net position of Member States. The CAP, with all discourse and interests it involves, will importantly contribute to it. What objective criteria, what strategies? It is only about the political-economic reality and pragmatism, which only proves that the European Union is not yet ready for a common responsibility and more efficient public policies. It is all about the money and political power at home, on a domestic stage. As if the difficult times have not yet convinced us about the incredible need for a change, for a reinvigorated European idea.

 Emil Erjavec

Photo Credit: Thom  Ross Gunfight at the OK_Corral.

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One Response to “Gunfight for CAP Budget Money”

  1. Alan Matthews →
    July 10, 2012 at 09:03 #

    @Emil

    Very useful analysis. It appears there may be some movement in the net contributors’ club. According to a report in the UK Telegraph this week:

    “Francois Hollande, the Socialist French president, is preparing to a ditch a deal over the next European Union budget in a move which would force the British government to raise taxes or cut spending by £3bn.

    In December last year Nicolas Sarzoky, Mr Hollande’s predecessor, signed a letter agreeing to freeze the EU’s spending from 2013 to 2020.

    However, senior officials in Brussels have told The Sunday Telegraph that Mr Hollande is poised to withdraw from the agreement.

    Angela Merkel, the German chancellor, is also reconsidering her support for an EU budget freeze and increasingly favours more spending to boost economic growth.”