Prospects for the next CAP reform

The newly-elected MEPS are now finding their feet in Brussels and committee memberships have been assigned. Commission President Juncker has allocated portfolios to the Commissioners nominated by member states, and the European Parliament has scheduled its confirmation hearings beginning next Monday 29 September. The hearing for the Commissioner-designate for Agriculture and Rural Development, Phil Hogan, is scheduled for Thursday 2 October.

What will the new Commissioner and the new Parliament mean for future CAP reform? With the implementation of the Ciolos CAP reform not even begun, it might seem presumptuous to turn to thinking about the timetable and prospects for the next CAP reform. Nonetheless, in this post, I discuss the likely timeline and speculate on the possible outcome.

A possible reform timetable?

A number of possible trigger points are already set. The most important of these is the renegotiation of the EU’s Multi-annual Financial Framework (MFF) for the period after 2020 (the duration of this remains to be decided but must be of at least five years). The schedule for approving the current MFF gives us some idea what to expect.

For the current MFF, the Commission forwarded its proposal to the Council and Parliament in June 2011. The European Council, having failed to reach agreement at its meeting in November 2012, finally decided on its common position in February 2013. The Council and Parliament reached a preliminary agreement in July 2013. However, the Parliament maintained a reserve on some CAP-related items which were not finally resolved until after a further adjustment in the Council mandate at its meeting in September 2013. The Parliament gave its formal consent to the MFF package on 19 November 2013, and the Council finally adopted the MFF at its meeting in December 2013 which allowed the new MFF to enter into force on 1 January 2014. From start to finish, the process took a total of 30 months, of which 20 months were required for the European Council to reach agreement and the remaining 10 months were required to obtain the consent of the Parliament and complete the legislative process.

For the post-2020 MFF, the process will start 6 months earlier than the last time. The MFF Regulation requires that “Before 1 January 2018, the Commission shall present a proposal for a new multiannual financial framework”. Assuming a similar 20 months’ time lag, this would suggest agreement on a new MFF by the European Council by July 2019. However, elections to a new European Parliament take place on 23 May 2019, so the Council would be seeking the consent of a newly-elected Parliament which may have different views and priorities to the outgoing Parliament. The negotiations may be further complicated by whether the UK exit from the EU is completed by this date or not.

We should note that the Parliament got agreement on a ‘revision clause’ in the current MFF whereby the Commission will present a review of the functioning of the MFF towards the end of 2016, taking full account of the economic situation at that time. The Commission has declared that this review will focus mainly on the functioning of the global margin for payments in order to ensure that the overall payments ceiling remains available throughout the period and on the particular requirements of the Horizon 2020 programme.

It has also agreed to examine aligning its proposals for the next MFF with the political cycles of the Institutions. As the next Parliament will give the final consent on the next MFF at the beginning of its period of office, any Commission proposal is more likely to address the duration of future MFFs rather than alter the timetable for agreement on the next MFF.

In his political guidelines for the next Commission presented to the Parliament last July, Commission President Juncker seemed to go further by stating that “The mid-term review of the Multiannual Financial Framework … should be used to orient the EU budget further towards jobs, growth and competitiveness.” In his mandate to the new Agriculture Commissioner, he specifically identified as one of his tasks “Contributing to the 2016 review of the Multiannual Financial Framework by identifying ways of further increasing the focus of the CAP on jobs, growth, investment and competitiveness.”

The mid-term MFF review could thus provide an opportunity to review the new CAP regulations although it is hard to see that it would become an occasion to revisit the 2013 CAP reform.

The CAP and the next MFF

For the CAP, the size of its allocation in the post-2020 MFF will be crucial. The CAP’s share in the overall EU budget has been declining (the share of Heading 2 in MFF commitment appropriations which covers the CAP but also small amounts for fisheries and LIFE+ will fall from 44.3% in 2007 to 36.1% in 2020) but it remains the second largest expenditure item after cohesion policy.

If, as we must assume, member states will want to continue to hold a tight rein on the overall size of the MFF in the next period, will the Commission seek to find additional resources for competitiveness and infrastructure projects by cutting back on the CAP budget more strongly (as recommended in the leaked but discarded first draft of the Commission’s mandated budget review half way through the 2007-2014 MFF)? How will the new Agriculture Commissioner seek to defend the existing share of the CAP in the EU budget, as one assumes he will? (on the role of the Commissioner, see further below).

The MFF is not just an accounting exercise but also sets out the Union’s political priorities for the coming period. It was in its June 2011 MFF communication, for example, that the Commission first set out its overall objectives for CAP reform in the coming period. This communication was the first to specify the Commission’s proposed greening of direct payments, the convergence of direct payments, capping, changes to rural development programming and reforms in market support. These were then elaborated when the Commission’s draft CAP regulations were published later that year in October 2011.

We would expect, therefore, that the Commission would follow up on its MFF communication towards the end of 2017 with a proposal at least for a new rural development regulation given that the current programming period expires at the end of 2020. Whether the Commission proposes, in addition, radical changes in the direct payments and market support regulations will depend on the Commission’s, and the Commissioner’s, appetite for further CAP reform. For the reasons outlined below, I am not holding my breath in that regard.

Note that, for the same reasons of the parliamentary cycle, the current Parliament will not be involved in concluding the co-decision process on revised CAP regulations as part of an MFF package. This Parliament will have dissolved before the negotiations seriously get underway.

Before addressing the political economy of further CAP reform, we should note two other possible trigger points for Commission initiatives. The first is the requirement, in the 2013 direct payments regulation, for the Commission to present an evaluation on the implementation of the new ecological focus areas by 31 March 2017 accompanied, where appropriate, by a proposal for a legislative act to increase the arable area covered by EFAs from 5% to 7%. While this appears to be a narrow mandate, an activist Commissioner could use this opportunity to also re-open other aspects of the implementation of CAP greening.

Another possible trigger point is contained in the new horizontal regulation which requires the Commission, as part of the extended common monitoring and evaluation of CAP policy instruments, to present an initial report on the performance of the CAP by 31 December 2018 and a second report by 31 December 2021. Given the MFF timetable described above, it would seem plausible that the first performance monitoring report would be wrapped into the process of presenting the CAP budget in the next MFF and possible revisions in the accompanying CAP regulations.

What is meant by CAP reform?

Will those draft CAP regulations constitute a proposal for the ‘Hogan reform’ of the CAP? Below, I consider the political economy arguments which point to limited rather than radical change in the next set of CAP proposals. But it is possible that this discussion could get very mixed up because people have very different interpretations of what they mean by ‘reform’. Reform means change, but change is, in itself, an ambivalent term. Here, I highlight two dimensions of change: the distinction between ‘grand reforms’ and ‘fine-tuning’, and the direction of reform.

The mandate given to the Commissioner-designate for Agriculture and Rural Development by Commission President Juncker on his appointment emphasises implementation of the recent CAP reform, further simplification and prudent management of financial resources as his key tasks. There is no suggestion here that the CAP budget in the next MFF will be under threat unless there is a radical restructuring of the way the money is spent. Juncker has too many other battles on this hands to want to start on the CAP, which did not warrant a mention in his political statement to the Parliament.

This does not mean that the new Commissioner will not have a busy programme of CAP legislation in his period of office. An EP briefing to prepare COMAGRI MEPs for the confirmation hearings next week lists some of the dossiers he must address. Implementing the newly-reformed CAP includes some specific challenges, such as the adaptation of the dairy sector to the end of quota system, answering recent strong criticisms from the EU Court of Auditors on EU financial support for the wine sector, and addressing the current crisis resulting from the Russian ban on imports of EU farm products.

Other priorities include international negotiations covering agricultural goods, such as those relating to the Transatlantic Trade and Investment Partnership (TTIP) or within the WTO as well as policies on cultivation and use of genetically modified organisms and on the use of hormones or cloning in animal farming. Further, if it turns out that instruments in the new CAP are insufficient to address some emerging or unexpected problems, one would expect the Commission to respond by proposing new legislation.

Arguably, however, all of these issues amount to ‘fine-tuning’ of the CAP rather than adding up to a ‘grand reform’. While it may be hard to draw the distinction, ‘grand reforms’ in the past have significantly altered the balance of the two CAP pillars, changed the design and the distribution of direct payments, introduced new policy objectives for the CAP, or modified the degree of public intervention in agricultural markets. Nothing in the President’s mandate or the Parliament’s proposed agenda for the new Commissioner hints at changes of this kind.

What direction of reform?

The second definitional issue concerns the content of any future ‘grand reforms’. Reform is a value-laden term that positively denotes significant change in line with the observer’s preferences. But one person’s reform may be another person’s regress, as evidenced by the debate whether it is appropriate to describe the 2013 CAP package as a ‘reform’ or not.

Until the Ciolos CAP package, there had been a certain logic to the trajectory of CAP reform towards what economists consider less distorting and more market-oriented policy instruments. The MacSharry and Agenda 2000 reforms replaced market price support with coupled direct payments, while the Fischler 2003 reform and the Fischer Boel Health Check replaced coupled by decoupled payments and set a date for the final elimination of supply controls on milk, sugar and vineyard areas.

From this perspective, a true reform in 2013 would have followed the advice of the OECD Agriculture Ministers in 2010 and moved from untargeted decoupled direct payments (which can only be justified as an interim, transitional measure) to targeted transfers designed to achieve specific objectives. This is the definition of ‘reform’ used on this blog.

The Ciolos reform made some moves towards greater targeting (it might be better to call it differentiation) of direct payments while also distributing them more evenly across member states and farmers. It confirmed the elimination of supply management for milk and sugar and introduced measures to give producers greater bargaining power in the supply chain. It paid greater attention to increasing the competitiveness of EU agriculture, through new measures and greater resources for innovation and limiting the future use of export subsidies.

It responded to calls for greater subsidiarity by providing greatly increased flexibility to member states on how they want to implement the CAP, albeit at some risk to the cohesion of the single market. It also avoided responding to calls which would have reversed the reform process to date, such as introducing price-dependent counter-cyclical direct payments or significantly raising safety net intervention prices.

However, the 2013 CAP package also enlarged the scope for re-coupling of direct payments, did not forbid the use of export subsidies, and maintained expenditure on largely untargeted direct payments at the expense of Pillar 2 funding. Also, the greening proposals adopted have been heavily criticised as yielding very limited benefits for the environment due to the shallow nature of the measures and the large number of exempted farmers, despite the allocation of 30% of the direct payments budget as a ‘green payment’.

Not surprisingly, environmental NGOs (eNGOs) are among those most anxious to push for an early new initiative on CAP reform, hoping to reverse some of the damage inflicted by Council and Parliament amendments to the Commission proposals and to build on the bridgehead represented by the green payment. Whether their demands will fall into the category of ‘fine tuning’ or will seek a more radical re-envisioning of the CAP remains to be seen.

At the same time, if farm prices fall (perhaps as a result of slowing global trade) and margins come under pressure, the Commissioner will face calls to raise intervention prices, to reintroduce export subsidies, to propose a voluntary buy-out scheme in the dairy sector and to move back towards a more regulated market.

Thus, an important issue for the incoming Commissioner’s term in office is not only whether he will propose a ‘grand reform’ but what direction would it take? Answering these questions requires an understanding of the political economy around another CAP reform.

The political economy of further CAP reform

The political economy of a further CAP reform depends, in the first instance, on the actors directly involved – Commissioner, Council and Parliament – and the external forces to which they must respond.

The Commissioner. The first variable in the equation is the new Commissioner, on the reasonable assumption that he is confirmed following the hearings next week. We will know more about Hogan’s intentions following his answers to the Parliamentary questionning, but his first interview given to the Irish Farmers Journal following his appointment as Commissioner-designate makes clear that his first priority will be to continue support for production agriculture.

I will continue to emphasise the importance of food production in my new role. Europe has a massive responsibility to feed itself, and to produce food for those starving populations unable to meet their demand for food production.

As evidence of his commitment, he noted that, as Environment Minister in Ireland, he had highlighted “the need to balance climate change mitigation measures with the need to feed the planet”.

Specifically, on the possibility of a mid-term review of the 2013 CAP reform, Hogan had this to say:

Its not good for market certainty for farmers to have too many changes in quick succession. We have been bedevilled a bit by that over the last 20 years. I think now is an opportunity for some stability.

Taken together with the limited mandate for reform in Juncker’s letter of appointment, it does not appear as if the new Commission is about to propose a major shift in CAP spending priorities.

The Council. This view is undoubtedly shared by the member states which still have to make ready to implement the 2013 reform from next year, which are appalled by the additional complexity and fearful of the prospect of payment disallowances if they get it wrong. The reformist camp, always a minority, had anyway lost some of its momentum and cohesion during the 2013 CAP negotiations (the Dutch keeping quiet, the UK otherwise preoccupied).

A more important influence on the zeal for further reform is the long-run impact of the greater flexibility that member states now have to implement the CAP. Member states which wish to move the CAP in a more targeted direction to focus on public goods now have considerable scope to do that within the current CAP framework, even if the same flexibility allows other member states to move in the opposite direction. Why waste political capital advocating for further CAP reform when the possibilities are already in your own hands?

The Parliament. I have argued above that the current Parliament will not play a significant role in deciding the outcome of any Commission proposal on the CAP accompanying its next draft MFF regulation. As I also do not foresee any major CAP initiative as part of the 2016 mid-term review of the MFF, the current Parliament’s influence will be confined to deciding on its response to the Commission’s EFA report and accompanying legislative proposal expected in early 2017.

The nature of the Parliament’s response will be influenced by the committee to which it allocates the dossier. As any legislative proposal would involve an amendment to a CAP regulation, the Parliament might be expected to give the dossier to COMAGRI. On the other hand, the issue is clearly an environmental once and COMENVI would have a good case to be the lead committee or at least co-responsible with COMAGRI. The greater the involvement of COMENVI, the more likely that the Parliament’s position would be favourable to further greening of the CAP.

External forces influencing the next CAP

The 2013 CAP reform was clearly influenced by external events, in particular the high and volatile prices on global food markets which changed the terms of the debate on the future CAP by elevating the ‘food security’ argument at the expense of the ‘public goods’ one. Unexpected external events could also be important in shaping the Commission’s next CAP proposals.

The WTO, an important influence on earlier CAP reforms, is not a significant driver of further reform even if the Doha Round unexpectedly returned to life, although the CAP remains vulnerable to a challenge regarding the Green Box status of the single payment. Global food prices are forecast to remain at historically high levels, but also to be more volatile, which will continue to feed into the ‘food security’ narrative for more support for EU farmers.

The EU’s next energy and climate package now being negotiated will impact on agriculture in various ways, including the support given to agriculture-based biofuels, the way emissions from land use and land use change are addressed and the scale of the demands on agriculture to limit emissions (this latter is more of an issue for individual member states than for the EU as a whole).

Also, biodiversity loss, water pollution, soil erosion and resource waste and inefficiency will continue to play a role in setting the agricultural policy agenda but the new Commission may well argue that these are matters where member states, in the first instance, must respond making use of the instruments that are already available.

Finally, the state of the EU economy towards the end of the decade will influence the overall resources available for the next EU budget. This, in turn, will shape the pressures on the share of the CAP budget in the next MFF.

What are the prospects for the next CAP reform?

Against this background, what are the prospects for the next CAP reform? Some optimists in the eNGOs see a possibility already for a mid-term review to review the greening measures, not only moving to the 7% figure for EFAs but also extending obligations to more farmers and even introducing additional measures. I see no political appetite for such an initiative.

Also, although it will be possible to measure the impact of EFAs on land use and agricultural production during their first two years of operation by early 2017 when the Commission is due to report, measuring their environmental impacts (or lack of them) is going to take much longer. Indeed, the extension of EFAs to 7% of arable land in 2017 should not be taken for granted and could well be postponed to the next revision of the CAP regulations in connection with the MFF.

The Commission will first make proposals to revise the CAP regulations as part of the MFF negotiations in 2018. The current Parliament will barely have time to read the documents before it is dissolved in March 2019. One of the lessons from the recent CAP reform was that the Parliament was unwilling to engage in trilogues with the Council until it knew the outcome of the MFF figures for the CAP. I have argued in this working paper that this position greatly helped the more status quo-oriented voices in that debate and weakened the position of those pushing for a stronger focus on greening the CAP.

We should assume that the Parliament will adopt the same position in the next set of negotiations as the same arguments would apply. Assuming that the European Council’s MFF figures are known by late 2019 or early 2020, the new Parliament could be in a position to agree on the new CAP regulations through co-decision in the course of 2020.

The current evidence suggests that these new CAP regulations will largely roll-over the existing rules, perhaps tweaking the external convergence formula under pressure from the new member states and making other minor changes. There appears to be little appetite for further substantial steps towards a more targeted CAP focused on the delivery of public goods. On the contrary, the specific mandate given to Hogan by the Commission President is to increase the focus of the CAP on “jobs, growth, investment and competitiveness”. This sits well with the expressed views of the Commissioner-designate himself.

But there are still four years to go before the Commission makes its proposals, and a lot can happen in that time!

Photo credit: Irish Independent

This post was written by Alan Matthews. The post was updated on 27 Nov 2016 to highlight the implications of Brexit on the timing of the next MFF.

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2 Responses to “Prospects for the next CAP reform”

  1. Dermot Gilley
    October 12, 2014 at 14:18 #

    “… addressing the current crisis resulting from the Russian ban on imports of EU farm products …” Now would be an ideal point in time to reduce the subsidies that actually drove the over-production that made the EU to dump its surpluses on Russia (and Africa, and then some) at the expense of the EU taxpayrs and consumers who “enjoyed” food “security” at the expense of exaggerated prices while at the same ti8me nearly no sector of EU agriculture really made any profit if one first deducted subsidies.

  2. Richard Wakeford
    October 27, 2014 at 14:25 #

    Of course, Russian production has not itself been subsidy free. Research shows that there is scope for them to replace imports with more local production and Prime Minister Medvedev has initiated a new road map to achieve that.