So, is examination of member states’ financial net contributions a shameful exercise: hiking up national egoism and ignoring the larger benefits of European integration? Not at all. If CAP funds were spent exclusively on European public goods, such as climate change mitigation or the protection of endangered species, national bottom lines would indeed not matter. The money should be allocated wherever greenhouse gas reductions can be achieved most cheaply or where the need for wildlife protection is the greatest.

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.

The CAP has to respond to new challenges, and thus it needs more funding. At the very least, and more realistically, the current budget must be preserved. That is a common line of reasoning. It is also a surprisingly simple rule-of-thumb considering the eye-watering annual budget of EUR 55 billion. [...]

The biggest driver for further reform of the CAP is budgetary. At a time when most governments are struggling with vast budget deficits, public expenditure is under pressure as never before. Policy-makers are looking for ways to trim budgets, to get better value for public money and to ensure that budgets are aligned with their most pressing policy priorities. Several years ago the commission initiated a ‘fundamental’ review of the EU budget and it is expected that this will set the scene for the debate over the EU’s finances from 2014 onwards. The views of member states are critical, as they hold the EU’s purse strings. James Clasper and I have this week published a new analysis of the views of member states on the EU budget and the CAP, based in part on their responses to the budget review consultation. As part of the analysis we created a typology of member states, with five categories: Gold Diggers, happy to reap the benefits of integration and let others pick up the tab; Misers, fans of budget discipline and a smaller CAP, but keen to claim compensation for their net balance deficits; Big Spenders, who want an ambitious budget but are prepared to pay for it; Modernisers, who want to keep the budget under control but also to simplify its structure and Fence-Sitters, quick to pay lip service to the idea of budgetary discipline, but still keen to maintain CAP spending levels.

You can read a summary of the report at European Voice, or download the report in full over at followthemoney.eu.

Last Friday, Le Monde, the leading French daily newspaper, devoted a double-page spread on its comment pages to the common agricultural policy. Along with José Bové, Michiel A. Keyzer and Jean-Christophe Bureau I was invited to contribute an article to the debate. You can read it in French on the Le Monde website. I’ve posted an English version below.

Farming should protect Europe’s environmental resources not use them up

In 2009, farm incomes fell across the whole of the EU, not least in France. Dairy farms have been hardest hit with average prices down twenty per cent. This is despite the EU spending 55 billion euro on the common agricultural policy, one of whose aims is to ensure farmers a fair standard of living.

Not long ago the lists of who gets what from farm subsidies were considered ‘state secrets’. No wonder. They reveal that far from supporting small family farms, as the public might suppose, the CAP is lining the pockets of Europe’s biggest landowners and agri-businesses. The data shows that across Europe, 85 per cent of aid goes to the top 17 per cent of recipients.

This is because under the twisted logic of the CAP, the biggest farms with the best land get the most public assistance. Besides helping the rich get richer and big farms to buy out their smaller neighbours, subsidies for land ownership and production rights creates a kind of closed shop. Young farmers must buy their way in and are saddled with heavy debts.

Modern agriculture has brought an abundance of food but it has come at a price that goes beyond the financial costs of the CAP. Over the past quarter century, 40 per cent Europe’s farmland birds have disappeared. Bee colonies, so necessary for pollination of arable crops, are experiencing sudden collapse. Rivers and seas are fouled with fertilizers, pesticides and animal effluent. Each year more ancient natural pasture is put to the plough and more wetlands are drained: once gone, forever lost. The CAP has done little to help. In France, for example, payments for farmland conservation amount to 380 million euro in 2008. They are dwarfed by old-style subsidies of 9.34 billion euro.

Things have improved a little in the past few years and Europe is no longer hurting farmers in developing countries by dumping big surpluses overseas. Farmers are mostly free to farm to market demand rather than to government diktat. Yet these reforms have been opposed at every turn by farm unions and the politicians and civil servants in ministries of agriculture, between whom there are often close ties.

And now, even this modest progress is at risk from a new wind of protectionism blowing across the continent. With a growing world population and a changing climate the question of how humanity will feed itself is back on the political agenda. And rightly so. During the winter of 2007/08, food prices leaped to record levels and the world’s poor faced hunger and even comparatively wealthy Europeans felt the pinch. The response in some quarters has been to adopt a siege mentality and aim for self-sufficiency in food. Why, it is argued, should we put ourselves at the mercy of global markets when there is more we can squeeze out of our own lands?

To base an entire agriculture policy on this logic would be a mistake. Seductive though it may be, the promise of European food self-sufficiency is an illusion as it would come through even greater dependency on on imports of natural gas from Russia for fertilizer and oil from the Middle East to run farm machinery.

Instead of a renewed push for unsustainable agricultural intensification, we should encourage more environmentally-friendly farming. Climate change will increase the risk of drought, flooding and poor harvests and the frightening reality is that any food shortages we may have experienced lately are nothing compared to what we might expect mid-century. We would be wise to safeguard the fertility of our own over-exploited soils, conserve our own precious water, protect the biodiversity we need for the pollination of fruits and vegetables and the ecological resources we will need in an uncertain future. In Europe there is little ‘spare land’ to cultivate and big increases in yields will be hard to find. Increasing global food production can best be achieved by helping farmers in poorer countries whose agricultural productivity lags far behind ours.

Following the election of a new European Parliament and the appointment of a new Commission, the EU will this year embark on a fundamental review of its agriculture policy, which still accounts for 40 per cent of the community’s entire budget. Aside from providing income support to a sector of society that is, more often than not, richer than the average citizen, taxpayers get little for our money. The future must be a common European policy to protect and preserve Europe’s lands, recognising the role played by sustainable farming.

It is certain that such a shift will be fought hard by those who have got used to receiving ‘money for nothing’ but at a time when government budgets are under such strain, we cannot go on like this. In 2009 we discovered where money goes and witnessed the sheer the waste and inequity of a system that in 2008 paid 1,583,120 euro to Prince Hans Adam II of Liechtenstein and 253,987 euro to Prince Albert of Monaco. This year we must start taking action to build a better policy.

Jack Thurston is co-founder of farmsubsidy.org, a network of journalists, researchers and activists pushing for greater transparency in the CAP.

As far as the CAP is concerned, probably the most radical proposal in the leaked draft of the Commission’s forthcoming communication on the future of the EU Budget, is for the introduction of co-financing. The draft suggests that a larger responsibility for CAP spending could be assigned to member states, with direct aids ‘co-financed by national contributions’. This would free up money in the EU budget for other policy areas like energy, foreign policy, economic growth, jobs and climate change. [...]

Leaked copies of a document from the European Commission’s budget directorate reveal an aspiration to substantially cut agriculture’s share of the EU budget from 2013 onwards. [...]

Until recently, I have walked through Brussels with this grey-blue bag that all participants of the 2008 budget review conference received. In the meantime, it has fallen apart, and I don’t have anything to replace it. This is somewhat similar to the CAP & EU budget debate: the 2008 conference presenting the results of the consultation process briefly attracted broad attention, but subsequently, the debate fizzled out and was overwhelmed by the financial and economic crisis. [...]

The final paragraph of Commissioner Fischer Boel’s valedictory leaflet is revealing and foreshadows the debate that has yet to surface about the future of the CAP after 2013, the end of the current financial perspective. Mrs Fischer Boel makes the case for maintaining a common European agriculture policy among the EU’s 27 member states, presumably funded from the EU budget, as it is now. [...]

In a recent report, the UK House of Lords European Committee criticised the European Commission’s proposals for the 2010 European Communities budget for maintaining a very high level of spending on agriculture, and failing to shift adequate resources to stimulus measures to aid economic recovery. It expressed frustration that, in the middle of an economic crisis, the proportion of the budget going to agriculture remained so large.

It identified a particular problem for the funding of the second tranche of the European Economic Recovery Programme. This was the stimulus package of €5 billion agreed in March 2009, of which €2.6 billion was to be funded from the 2009 budget and €2.4 billion from the 2010 budget. Because of the limited margin between the Financial Perspective ceiling and proposed appropriations for Heading 1 of the budget Sustainable Growth, last year it was agreed to fund the energy infrastructure projects by transferring some of the unused margin under Heading 2 (mainly agriculture) to Heading 1. The tortuous route to reaching agreement on this budget reallocation is well described in a blog post on the European Journal site.

The same problem arises with the 2010 draft budget, in that there is not enough of a margin in Heading 1 to fund the second tranche of the EERP. Apparently, in the political agreement last year, it was agreed that the remaining €2 400m would be funded through a “compensation Mechanism” to be defined. At the conciliation of the 2010 and 2011 budgetary procedures, the European Parliament, the Council and the Commission will examine all available sources that could provide for the compensation of funds. Presumably the most likely source is a further transfer of the margin in the agricultural budget to Heading 1.

The EERP, along with the Food Facility, highlight the inherent tension between agreeing a medium-term financial framework for budget spending with identified ceiling amounts for major expenditure categories, and the need to maintain flexibility to respond to particular needs or crises as they emerge. One of the ways to maintain flexibility is to insist on margins of a sufficient size, although there are a number of member states who argue that unused funding should be returned to them rather than reallocated to other headings. This is likely to be one issue touched on in the Commission’s response to the budget review expected later in the year.

Last week I posted five reasons why it is hard to justify spending 30 billion euros each year on the Single Payment Scheme. Here are five more reasons. [...]

The EU spends around 30 billion euros each year on the single payment scheme, by far the largest of the myriad schemes and programmes that together comprise the 54 billion euro budget of the Common Agriculture Policy. The scheme was first introduced in 2005 but it is hard to see it surviving in its current form beyond the end of the EU’s 2007-13 financial perspective. Here are five reasons why the single payment scheme is not politically sustainable. Five more will follow tomorrow. [...]

With the Health Check out of the way, it looks as if the medium-term future of the CAP is going to be strongly influenced by discussions of how the EU budget should be spent. This always raises the awkward question of the opportunity cost of spending large sums of money on subsidising farmers.
[...]

A major conference entitled “Reforming the Budget, Changing Europe” was held yesterday in Brussels, marking the end of the consultation phase of the ‘no taboos’ review of the future of the EU budget led by Budget Commissioner Dalia Grybauskaité. The former Lithuanian finance minister presented the results of the consultation process that received more than 300 responses including position papers from each of the twenty-seven member states along with NGOs, universities, regional and local governments, think tanks, lobby groups and businesses. It is clear that Grybauskaité is no friend of the Common Agricultural Policy, especially its €30 billion in direct payments. [...]

The very complexity of the CAP opens it to scams of various kinds. These may not be fraudulent in the criminal sense of the term (although such instances have occurred) but they do represent a use of loopholes to divert public money to line the pockets of individuals. [...]

By approving a set of proposals to water down the already modest Commission proposals for the health check, the agriculture committee of the European Parliament has reinforced its reputation for thinking rooted firmly in the past and largely captured by the narrow set of producer interests who do well from the CAP status quo. As I have argued before, the lack of ambition of the health check is playing into the hands of the growing number of those who would like to see the CAP swept away altogether. [...]

In December 2006 European Union heads of government agreed a new Financial Regulation, the legal text that sets out the rules for the EU budget. The new Financial Regulation contains new requirements on the public disclosure of end beneficiaries of EU funds. The first significant fruits of the new budget transparency law are due by 30 September 2008, the deadline set out in the implementing regulations relating to expenditure under the Common Agricultural Policy. By this date each member state is obliged to provide a web-based search tool detailing all end beneficiaries of EU funds spent under rural development programmes between 1 January 2007 and 14 October 2007 (sometimes referred to as the second pillar of the CAP). [...]

Czech agriculture minister Petr Gandalovic made an curious statement at the informal Agriculture Council meeting held earlier this week in the French Alps. Mr Gandalovic, who will assume the chairmanship of the Council under the Czech EU Presidency in the first half of 2009, told his colleagues:

“The more specific you make the policy, the more room you give to bureaucrats who make the decisions. Non-targeted payments give more power to farmers.”

In case it’s not clear, Mr Gandalovic was making the case against targeted payments. In doing so, perhaps inadvertently, he touched on a question that goes to the very heart of the debate about the future of the CAP: the extent to which the CAP’s 54 billion euros of annual public expenditure should be targeted on clearly defined objectives and measurable outcomes. It is a debate raging right now within DG Agriculture, a power struggle that is pitting CAP ‘modernisers’ who seek a greater role for the current rural development pillar against CAP ‘consolidators’ who defend the “Fischler settlement” and the current Commission Health Check agenda. What it boils down to is a debate over the fundamental role of public policy in agriculture. [...]

The European Commission has published its plans to divert up to a billion euros from CAP underspends to a new fund to help farmers in the developing world to increase productivity in the face of the world food crisis. Higher food prices have meant lower CAP expenditure on market measures such as intervention, storage and export refunds and the Commission has suggested redirecting parts of these savings to agricultural production in the third world. Commission President José Manuel Barroso, Development Commissioner Louis Michel and Farms Commissioner Mariann Fischer-Boel have all spoken enthusiastically about the idea, but there are growing rumblings of opposition, from both the Council and the Parliament, both of which will have to approve the plan if it is to become a reality. [...]

New official figures on how the the €53.5 billion of EU expenditure on the Common Agricultural Policy was distributed in 2007 show just how raw a deal the new member states are getting under Pillar One of the CAP, which still accounts for four fifths of the total CAP budget.

The figures are presented in a novel interactive data visualisation below (you may like to play around with the settings for Bubble Size, Label and Colour. [...]

In order to animate a transparent debate on the purpose, intensity and spatial distribution of CAP expenditure, a number of maps overlaying CAP expenditure data and high nature value farmland have been produced as part of a study recently completed by IEEP for the UK Royal Society for the Protection of Birds (RSPB). [...]

The vast majority of expenditure under the CAP continues to be directed to income support and is not explicitly targeted at responding to biodiversity, or other pressing environmental objectives. According to a new IEEP study for the UK Royal Society for the Protection of Birds (RSPB) the distribution and allocation of CAP funding, and the uses to which it is put to, should be adjusted in order to help meet the EU’s international commitment to halt the loss of biodiversity.

[...]

With the release yesterday of new figures on EU expenditure in 2007, the Commission has been busy spinning the line that farm subsidies no longer account for the biggest item of Brussels spending. Most news outlets have been swallowing this line without taking a closer look at the figures which show that a full 50 billion euros of EU money was spent on farm-based programmes. [...]

Surging prices for agricultural commodities means that the EU spends much less on the traditional ‘market measures’ of the CAP such as intervention buying when prices fall below a target price, export subsidies and private storage aid for unsold surpluses. Last year the EU decided to allocate some of this underspend to the Galileo space programme. This year, the proposal is to channel the money to farmers in developing countries who currently suffer from very low productivity. [...]

The UK Chancellor of the Exchequer (aka Finance Minister) Alistair Darling wrote earlier this week to all his counterparts on the Economic and Financial Affairs Council (ECOFIN) ahead of today’s meeting, setting out the case for a radical reform of the EU’s agriculture and trade policies. Specifically, he calls for the abolition of direct aids (some €34 billion a year) and the abolition of EU tariffs on agricultural imports. He also signals the growing concern in the UK about the EU’s headlong rush into food-for-fuel policies that are widely seen as contributing to the rapidly rising costs of food in Europe and elsewhere. [...]