A feature of the move towards decoupled direct payments in the EU since the Fischler 2003 reform has been greater flexibility for Members States in the management of these payments. This can be seen in various ways: the different options on which to base the Single Payment Scheme; different cross compliance requirements including definition of Good Agricultural and Environmental Conditions; different possibilities for modulating payments between Pillar 1 and Pillar 2; and provisions for ‘national envelopes’ and for the retention of partial coupling.

In this post I examine the future for national envelopes and partial coupling in the light of the Commission’s draft regulation on direct payments after 2013. At issue is the extent to which the draft proposals expand the scope for coupled payments and national flexiblity more generally in the post-2013 period.

National envelopes sometimes refer to the overall ceiling on the funding for direct payments allocated to each Member State, but here I use it in the more specific sense to refer to the share of direct payments over which Member States have some discretion over how to make these payments. They have been contested since their introduction as part of the Agenda 2000 reform. On the one hand, proponents argue that they are a response to calls for greater subsidiarity because they give greater flexibility to Member States on how to allocate aid payments to help specific groups of farmers. For this reason, they have been viewed sceptically by other Member States which fear that they could lead to distortions of competition since they are implemented according to national criteria.

Article 69 in the 2003 reform

The 2003 reform allowed Member States to retain up to 10% of their previously coupled payment ceilings under Pillar 1 for specific supports to farming and quality production (Article 69 of Council Regulation (EC) No. 1782/2003). The additional payment had to be granted for specific types of farming which were important for the protection or enhancement of the environment or for improving the quality and marketing of agricultural products. Furthermore, the money had to be returned to the sectors from which it was withheld.

Seven Member States and one region chose to implement national envelopes under Article 69 – Finland, Greece, Italy, Portugal, Slovenia, Spain, Sweden and Scotland (UK) [see Commission summary here]. All Member States which implemented national envelopes used the measure to support the beef sector, with support for the arable and sugar sectors supported by four Member States each. Other sectors for which national envelopes were used included the sheep, dairy, tobacco, olive oil and cotton sectors, with Italy introducing a national envelope for energy crops in 2007.

Article 68 in the 2008 reform

In the 2008 Health Check, Article 69 (now renumbered as Article 68 of Regulation 73/2009) expanded the scope of national envelopes while keeping the overall 10% share of each Member State’s direct payments ceiling [IEEP has a good briefing on this]. Its purpose remains assistance to sectors or regions with particular difficulties but its use became more flexible. Member States can continue to use these payments for environmental measures or improving the quality and marketing of products or animal welfare. However, the money no longer had to be used in the same sector although this option was continued.

But in addition, the national envelope can now be used to help farmers producing milk, beef, goat and sheep meat and rice in disadvantaged regions or to support economically vulnerable types of farming. It can be used to top up entitlements in areas where land abandonment is a threat. It may also be used to support risk management measures such as contributions to crop and animal insurance premia and mutual funds for plant and animal diseases. Countries operating the Single Area Payment Scheme (SAPS) became eligible to use national envelopes for the first time. Moreover, Member States which made use of Article 69 of Regulation (EC) No 1782/2003 were given a transitional period in order to allow for a smooth transition to the new rules for specific support.

In order to comply with WTO Green Box conditions, support for potential trade-distorting measures under Article 68 is limited to 3.5% of national ceilings. This includes support for types of farming important for the protection of the environment, support to address specific disadvantages, and support for mutual funds.

Member States were given three opportunities to make use of Article 68 in that they could notify the Commission of their intentions in August 2009, August 2010 or August 2011. By comparing the Commission’s regular summaries of the implementation details it is clear that use of Article 68 has expanded over time. In the May 2011 summary, only Cyprus, Malta and Luxembourg appeared not to make use of Article 68 at all.

Partial coupling

The provisions for specific support in the national envelope articles should be seen in the context of the possibilities for continuing partial coupling under the Single Payment Scheme. In the 2003 Fischler reform, there was significant scope to retain partial coupling. For example, Member States could continue to couple 25% of arable payments and 40% for durum wheat (Article 66), 50% of payments to sheep and goats (Article 67), 100% suckler cow premium and 40% of slaughter premium or 100% slaughter premium or 75% of special male premium (Article 68). Some coupled payments for minor crops and processing aids also continued.

The 2008 Health Check integrated the partially coupled payments in the arable crops, olive oil and hops sectors into the Single Payment Scheme from 2010. Processing aids and most other coupled payments, including some specific payments in the beef sector, are integrated into the single payment scheme by 2012 at the latest. With the implementation of the Health Check agreement, the suckler cow and sheep and goat premia as well as payments for cotton will be the only formally coupled payments still allowed to remain in 2013.

The amounts available for coupled payments under the Health Check reform (either as partial coupled payments or under the specific support provisions in Article 68) are calculated annually by the Commission. The specified amounts for 2011 can be found here. The share of direct payments which are maintained coupled in 2011 is just under 7% (some minor payments for protein crops, nuts etc. but also cotton are not included). However, the percentages differ quite significantly across individual Member States, as shown in the diagram below.

Portugal, Belgium and Slovenia have the highest shares of coupled payments. For the old Member States, the main coupled payments are the suckler cow premia (Portugal, Belgium, Austria, France and Spain) while in the new Member States the main coupled payments relate to sugar and fruits and vegetables. Also of interest is the balance between residual coupled payments and specific supports introduced under Article 68. For countries to the right of the diagram, the main payments are those under Article 68. Overall, specific supports under Article 68 account for 2.6% of direct payments while residual coupled payments account for 4.0%.

Coupled payments under the Commission’s draft legislative proposal for direct payments post 2013

The main innovation around national envelopes in the draft Regulation is that Article 68 is replaced by a general provision to allow voluntary coupling where certain conditions are met. Member States can grant up to 5% of their national ceiling to sectors or regions where specific types of farming or specific agricultural sectors undergo certain difficulties and are particularly important for economic and/or social reasons. This proportion is increased automatically to 10% of their national ceiling for the new Member States or countries that have provided coupled support to suckler cows (Portugal, Belgium, Austria, France and Spain). If desired, these latter Member States can apply to the Commission to use an unrestricted proportion of their national ceiling for coupled payments provided they meet a series of conditions set out in the draft Regulation.

Furthermore, after 2016, all Member States can apply to increase the specified percentages (5% or 10%, respectively) that apply to them if they can show that an increase is necessary to meet these specified conditions. These conditions include:
- the necessity to sustain a certain level of specific production due to the lack of alternatives and to reduce the risk of production abandonment and the resulting social and/or environmental problems,
- the necessity to provide stable supply to the local processing industry, thus avoiding the negative social and economic consequence of any ensuing restructuring,
- the necessity to compensate disadvantages affecting farmers in a particular sector which are the consequence of continuing disturbances on the related market;
- where the existence of any other support available under the DP Regulation, the RD Regulation or any approved State aid scheme is deemed insufficient to meet the needs referred to in this Article.

As some of the existing coupled payments (sugar, fruits and vegetables) will lapse and be fully integrated into the decoupled payments scheme after 2012, these provisions would seem to give plenty of scope for Member States to maintain or even increase coupled payments after 2013. Particularly the inclusion of market disturbance as a justification for specific payments is a new departure, even if the scope of these measures is limited to maintaining the existing level of production but not increasing it.

On the other hand, Member States will lose the possibility to provide support to specific agricultural activities entailing agri-environment benefits under Pillar 1 (the current Article 68(1)(v)), while support for risk management schemes are also moved to Pillar 2. Whether any Member State will feel strong enough about these omissions to fight for their retention in Pillar 1 remains to be seen.

The summer break has come and gone and with the European Parliament back in session, Commissioners back from their yachts and their fonctionnaires back at their desks, the future of the EU budget is back in the spotlight.

As part of the December 2005 heads of government agreement on the 2007-2013 financial perspective it was agreed that there would be a midterm ‘budget review’ in 2008-09 which would look at all areas of the EU budget. including the two hottest political potatoes – the large share of funds going to the CAP and the British budget rebate. The review began with a big public consultation led by the then Budget Commissioner Dalia Grybauskaite, who pulled no punches in describing the budget as largely out of tune with Europe’s current and future challenges. However, she left the Commission early to become President of Lithuania and with delays to the Lisbon Treaty ratification the review process slowed to a standstill.

The future of the budget hit the headlines late last year with the leaking of an early draft of the Commission’s communication on the future of the budget. This suggested share going to the CAP and Europe’s regional policy needed scaling back to free resources for innovation, energy security, climate change and jobs. The document, which is understood to have been drafted by Commission President Barroso’s close advisers, was immediately disowned by a handful of outgoing Commissioners who saw it as a threat to their own budget lines.

We now learn that the Commission’s revised communication will be published in the first week of October (expect leaks before that). Budget Commissioner Janusz Lewandowski is said to favour “evolution over revolution” and in an interview with the German newspaper Handelsblatt the Commissioner suggested a reduction in the CAP budget. This week his officials have suggested the CAP budget could decline to around 33 per cent of the total (down from the current 40 per cent). MEPs with close links to farming lobbies are already raising the alarm. Irish MEP Mairead McGuinness said

“The Budget Commissioner sees a future with less spent on agriculture and more on research and innovation. His words are part of a softening up process, preparing the ground for a lower agriculture budget”

Yet Lewandowski is clearly taking a more cautious approach than previous Commissions. A decade ago the Prodi Commission suggested the CAP budget be cut to 30 per cent of the total EU budget. Prodi was eventually outmaneuvered by his own Agriculture Commissioner Franz Fischler and the CAP budget has increased each year since then with the bulk of it being ring-fenced up to 2013 under the terms of a deal made by French and German heads of government back in 2002.

Meanwhile, current Commission President Barroso, in his first ‘State of the Union’ address, steered clear of saying anything concrete on the future of the CAP that might frighten the horses. He called for “an open debate without taboos”, argued that the EU budget should be directed “where it leverages growth & delivers on our European agenda” and said that farm policy should contribute towards achieving global food security and the sustainable management of natural resources and reversing biodiversity loss.

One issue that looms large over the CAP is the possible extension of national co-financing, which applies to every other part of the EU budget, to CAP farm subsidies. This would help countries that are net contributors to the budget and might free up resources within the EU budget for other areas. It’s a move that seems to have been accepted by influential parliamentarians like Paolo De Castro MEP, chairman of the Agriculture Committee and is thought to be favoured by the French government.

In a possible sign of things to come in relation to co-financing, the Czech Republic government has decided that it will no longer make voluntary nationally-financed contributions to top-up CAP direct payments to Czech farmers and landowners. These optional payments have been taken up by all of the new member states during a transition period in which the EU funded contribution covers only a share of the total payments that can be made. The amounts involved have been substantial. In 2010, for example, the Czech government had topped up EU farm subsidy payments by €271 million. In the same year Poland topped up its farm subsidy payments by €1.1 billion, Hungary by €529 million and Bulgaria by €267 million.

There can be no doubt that if the CAP sees more national co-responsibility the idea of farm subsidies as ‘free money from Brussels’ will fade. Co-financing will focus minds in national finance ministries on whether voters would scarce national public funds should be spent on farm subsidies while cuts are being made in other areas like health, education, defence and housing.

A new study from the University of Wageningen in the Netherlands has attempted to model the effects of the abolition of EU farm subsidies. The authors of the report state that their study is very much a ‘worst case assessment’ since,

“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

Today, farmsubsidy.org revealed the results of an intensive two-day harvest of new farm subsidy data published by the European Union’s member states in accordance with the new laws on disclosure of beneficiaries of EU funds.

The data, relating to payments made in 2009, has been harvested from twenty seven government websites, in some cases using advanced computer programming techniques. So far, data on 38.3 billion euros of payments have been harvested (from a total CAP budget of 55 billion euros). In some cases member states have made the data easy to access, in other cases they appear to take deliberate steps to block access. As at 11am on Tuesday 4 May, 99% complete data has been obtained from 21 member states. Only partial data from France, Greece, Cyprus, Italy and Portugal. The United Kingdom has withheld all its data for political reasons until after this week’s general election (though the Scottish Government has published its data).

Farmsubsidy.org’s 2009 millionaires list (beneficiaries that received more than a million euros) shows a significant increase over last year. In 2008 we identified 1,040 farm subsidy millionaires. In 2009 already some 1,212 have been identified, receiving a combined total of 4.9 billion euros. This number is likely to rise as it does not include all data from Portugal and the UK. We expect that ultimately there will be a third more farm subsidy millionaires in 2009 than in 2008.

This year, the country with the largest number of farm subsidy millionaires is Germany. Between them, Germany’s 268 millionaire recipients took some 622,594,805 euros. France’s 174 farm subsidy millionaires, many of which are banana-producing companies in French overseas territories, took a combined 1,016,241,476 euros.

As was the case in 2008, the list of top recipients is dominated by sugar processing companies.

While the data does not indicate why these payments to sugar companies were made, it may be assumed they are part of the EU’s programme for ‘restructuring’ the sugar sector. This involves processing companies that wish to stay in business paying a levy into an EU fund to ‘buy out’ those companies giving up their processing quotas. Processing quotas are valuable because the EU price for sugar is fixed well above world market prices, representing a hidden subsidy from European consumers to sugar producers.

Other top recipients include dairy processing and trading companies that have benefitted from the reintroduction of the EU’s export subsidies for milk powder and butter, which enable them to dump excess European milk production on world markets. Export subsidies were reintroduced as part of the EU’s bail out of the dairy sector after milk prices fell from record highs in 2007/08 to record lows in 2009.

At the other end of the scale the data harvest has revealed some very small payments, some less than a euro. It is assumed that the costs of administering such modest aid payments vastly exceeds the face value of the payments.

According to the data from Sweden, which includes personal identification numbers, the youngest recipient of CAP funds is just 14 years old, while two Swedish recipients are 100 years old, though both are dead. The oldest living Swedish CAP recipient is a 98-year-old woman living in Dalsland.

A number of curious recipients of CAP funds was also revealed, illustrating the diversity of beneficiaries: an accordion club (Sweden – €59,585.10), a billiard club (Denmark – €31,515, a payment for beer and soft drinks), a Juri High School alumni society (Estonia – €44,884), Ons Genoegen ice skating club (Netherlands – €162,444), the Sint Maarten amateur football club (Netherlands – €354,566.62) and Schipol Airport in the Netherlands (€98,864.33). As in previous years, a number of banks and horse riding clubs were among the beneficiaries.
In Bulgaria, the national CAP paying agency appears to have paid itself a sum in excess of a million euros as well as payments to the 26-year-old daughter of the former Bulgarian deputy agriculture minister (who had responsibility for EU funds) in excess of €700,000 euros.

Farmsubsidy.org has also published an evaluation of which member states are meeting high standards of budget transparency, and which are failing.

The decision of UK civil servants to withhold the data during the general election campaign is without precedent and has provoked the disapproval of the Commission. According to the UK’s Department of Environment, Food and Rural Affairs, which has previously backed transparency in farm subsidies, the decision was made in the interests of political candidates who are beneficiaries of CAP funds.

The transparency ranking is topped by Hungary. Hungary also deserves special mention as the ‘most improved’ member state. Last year, the Hungarian government published data in an exceptionally unhelpful way: a series of PDF files that ran to thousands of pages. This year, the Hungarian government has provided comprehensive information on both EU-funded farm subsides and nationally-funded farm subsidies, in a user-friendly bulk-downloadable, electronic format. Other countries that have followed the best practice of providing the ‘raw data’ are Belgium, Denmark, Estonia, Czech Republic, Lithuania, Poland, Romania, Slovenia and Sweden.

This year’s transparency villains are Austria, Cyprus, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Portugal and Slovakia. These countries have all refused to provide the data for bulk download and their websites require ‘web-scraping’ robots to be programmed to harvest the data.

Greece is a particular problem case, suggesting that the Greek government’s difficulties with basic numeracy are not confined to its budget deficit. The Greek government’s farm subsidy website very inaccessible and the data presented on it contain arithmetical errors. For example, the published figure for total payments to certain beneficiaries was found to be less than the sum of the payments listed for those beneficiaries. A case of two plus two equalling one.

This is only the first cut of the 2009 data. More analysis is to come…

David Cameron, leader of a British Conservative Party that is well ahead in the opinion polls just weeks ahead of a General Election, has already ruffled feathers across La Manche, with reported jibes about the diminutive stature of French President Nicolas Sarkozy, who is reeling from personal life scandals and a drubbing in regional elections. The remarks provoked a reaction from Paris, which accused the British Opposion leader of lacking respect for the French Head of State.

Such a trifling spat may be just the start of a tricky Anglo-French relationship over the future of EU budget, in particular the €60 billion common agricultural policy and Britain’s special budget rebate. The rebate or “chèque Britannique”, as it is sometimes known, rankles with France, which feels Britain is too often a semi-detatched member of the European club: free riding on the benefits of the common market while resisting ‘ever deeper union’ and refusing to pay its way. The rebate was won in 1984 by Margaret Thatcher who swung her handback and demanded ‘my money back’. It has since entered into Conservative Party political iconography of a by-gone ‘golden age’ when Mrs T. defeated Argentina in a war over the Falklands, stood shoulder-to-shoulder with Ronald Reagan against the Soviet ‘Evil Empire’, took on striking coal miners and unleashed a wave of privatisation and deregulation that transformed the British economy. It is hard to imagine a Conservative government ever agreeing to give up such a totemic symbol as the EU budget rebate, the effect of which is to ensure Britain gets almost the same from the EU budget as it puts in.

In policy terms, the rebate is only really necessary because the EU budget is dominated by agricultural spending (nearly half of the budget goes on the CAP) and Britain is a relatively wealthy country with a relatively small farm sector. This gives rise to the structural budget imbalance that Mrs Thatcher sought to address with the rebate. If the CAP were scaled back then Britain would not need a rebate. Or so the argument goes. This was the case made by former British Prime Minister Tony Blair during the EU budget negotiations of 2005 and 2006. In the end he was comprehensively outmanoeuvred by President Sarkozy’s predecessor, Jacques Chirac, giving up a portion of the rebate in exchange for a ‘budget review’ that has yet to bear any fruit.

There is irony in the fact that that Nicolas Sarkozy, the man who most wants to see the end to the British rebate, has only this week declared himself to be a powerful opponent of downsizing the CAP, the most natural way of achieving that goal. Earlier today, in his first public comments after his UMP party’s defeat in regional elections, President Sarkozy declared:

“I am ready to confront a crisis on a European level, rather than to accept the dismantlement of the Common Agricultural Policy… I will not let our agriculture die.”

Could this put Nicolas Sarkozy, defending the CAP, on collision course with David Cameron, defending the British rebate? Perhaps, but there is an important twist and a possible solution. British farmers and landowners, who get around €4 billion a year from the CAP, largely vote Conservative. At heart they’re anti-EU but when they think with their heads they don’t want to see an end to the EU subsidies that they would be very unlikely to win from the British Treasury. Conservative politicians find it easy to talk tough on the CAP but there would be political hell to pay if they actually succeeded in abolishing subsidies for British agriculture.

Meanwhile, as President Sarkozy talks tough on preserving the CAP, the enlargement of the EU to 27 member states means France is on course to become a net payer into the CAP, rather than a net beneficiary. This will not have gone unnoticed in the French Ministry of Finance which has traditionally formed a strong alliance with the Agriculture Ministry and French farming, regarding the CAP as bringing ‘good German money to rural France’. When he sees the turning of the fiscal tide, and French taxpayers start paying to support Polish, Romanian and Bulgarian farmers, President Sarkozy may revise his view. There is a single solution to both dilemmas: cofinancing of the CAP. Rather than a CAP funded from a common European pot, with all that means for politically difficult budget imbalances, each country will meet a much larger share of its own farm subsidy bill. Of course this will go down very badly with the new member states, who will have to fund their own farm subsidies, but in the face of an Anglo-French alliance, with large net payers Germany and the Netherlands also likely to lend their support, they may have no choice. One man who may find himself in a rather tricky position is Agriculture Commissioner Dacian Ciolos, who will find it difficult to sell such a policy to his Romanian countrymen.

The author (pictured, below) is a former Member of the European Parliament and currently a Transatlantic Fellow of the German Marshall Fund of the US. He also has a small farm in Portugal. This is the first in a series of guest posts on capreform.eu.

You will understand that – minor as it might seem – the point that got most of my attention in the paper presented today by the Presidency of the European Council on Agriculture was the one on olive oil. After all, as an olive-oil farmer I have a vested interest on the issue, and therefore I was taken by surprise by reading that the Presidency considers “the authorisation of the private storage of olive oil in 2009, which contributed to a recovery in prices and subsequent market stabilisation” as an example of the success of the existing market control mechanisms.

As I am being paid 50% of the price I received for my olives a couple of years ago – 30 cents a kilo instead of 60 – I have some difficulties getting the point of the Presidency. It is true that when I started harvesting back in November, the local buyer told me he could not guarantee more than 24 cents the kilo, which would probably not cover harvesting costs, and so he presented his 30 cents offer as a generous move.

In the Brussels world of free competition, I could sell my olives to somebody else, but in the real world of Vale do Vargo, the only competitor is a co-operative that is practically bankrupt and pays for your olives in kind (gives you olive-oil in return) which is not a very practical form of payment. In the neighbouring village the local co-operative closed long ago, and several practicalities make it difficult for me to deliver my olives to longer distances.

So, I could think of milling the olives myself, or I could think of asking my south-eastern neighbour to mill them for me. But, well, all the traditional olive mills have been closed, according to the national authority’s explanation, because of Brussels directives. In fact, Brussels directives only told member states that waste water resulting from the milling process of olives should be correctly disposed of, and this did not mean closing down hundreds if not thousands of olive mills across the country, but Portuguese national bureaucracy saw here another golden opportunity to “modernise” by decree this old-fashioned rural country and made a very restrictive interpretation of the directive.

My short farming history started exactly when I was nominated for a report on olive-oil in the Budgets Control Committee of the European Parliament and I got so fascinated with the various dimensions of the issue that I decided to see for myself how to deal with olive groves. I never thought of my olive trees as a business, but as a hobby. Nevertheless, I expected it would be much less expensive than it turned out to be. As I soon understood, many of the olive groves around my own are held as a hobby by people working in nearby towns or villages. They have a small plot of land, something like one or two “sortes” – over there it means from 2,5 to 7 hectares – they take care of them on weekends and they are very happy if the payment for olives will cover their costs, excluding their voluntary work.

Normally this is a population that likes to keep old ties with inherited land or inherited rural habits, and that is emotionally involved with the farming cause, as much as if their livelihood would significantly depend on these plots of land. Then you have those who still make a living out of these traditional olive groves, and they must explore at least some 30 hectares of land. They keep traditional olive trees, but they already use mechanical collection and a lot of chemicals with which they kill all existing vegetation between olive trees and combat major pests. Sometimes they irrigate their olives as well.

The past years have been dramatic for this group. After severe droughts that limited production they now face sharp drops in prices. In the last five to ten years most of the olive grove scenery of Southern Alentejo changed dramatically, with the implantation of huge intensive olive oil groves. Invariably using irrigation, they multiplied by a factor of five to ten the number of olive trees per hectare, although using young and small olive trees that will not be allowed to get old. These new farms use more efficient olive-picking machines and the same chemical approach as the traditional commercial farms.

Most of the new olive groves were planted by Spanish investors, and because of the overall economic crisis, investment dried up in 2008, and several of these olive groves are for sale. Up to 2007/2008 – that is before these new olive groves started producing – the Portuguese olive-oil production was steadily declining, as in the absence of major modernisations, traditional production was just uncompetitive. This situation had, however, a positive aspect: prices remained firm. As the Portuguese consumer gives a premium to Portuguese olive oil and the national production was far below national demand, there was a premium for the national olives.

As the European Commission has been subsidising private storage of olive oil and – unless there will be bad climatic conditions – everything points to a steady increase of olive production for the next few years, I believe the private storage that the Presidency’s paper presents as the symbol of success in the intervention of markets will certainly play a role in damping future prices. It is awkward that a Presidency that happens to coincide with the largest European olive oil producer member state does not even consider the possibility that what I am presenting here as my personal analysis may become a reality.

If we were to analyse carefully the effect of the use by the EU of massive storage measures – milk products, beef, and grains – when the problem was more structural than short-term, I think we would confirm my point of view. What my accidental farming experience together with my administrative, political and academic experience tell me is that we are facing a structural challenge that has to be considered in several angles: technical modernisation; environmental impact in water, erosion, biodiversity and landscape management; rural policy; budget and budget control issues and food quality.

In our Mediterranean conditions, a traditional olive grove – intermingled with fig and almond trees, cork and green oaks – with centenary olive trees where you can easily find bees-nests, lizards, all sorts of insects and birds, even refuge for rabbits, with a lot of other species of plants in between where you occasionally spot hares, pheasants or wild boars is a wonder of nature. In the past, it allowed the presence of the “gland pigs” – that strive better in oak forests, but that go as well on olive groves – that would eat grass and plants, the figs and the fallen olives – and thus preventing the reproduction of pests like the fruit fly – alternating with lambs that would eat the grass and occasionally would prune the unwanted lower branches of olive trees. The main problem is that you need to give a close eye on what these animals are doing to prevent them misbehaving, and this is time consuming and less competitive than the alternative of spraying chemicals around.

Hand-picking of olives has been out of the question for quite some time and the standard traditional method has been for many decades to hit the trees with a stick, and collect the olives with a net by the ground. This is quite a rude method that destroys the productive capacity of the tree and is still time-consuming. Lately, huge machines that help shaking the tree have been used, but this is much more cumbersome, expensive and time-consuming than to have small aligned olive trees that you can handle like a fruit tree orchard.

As decoupling of aids from production only very recently and still partially arrived at olive production, and decoupled payments are made on the basis of historic production, the Common Agricultural Policy actually became a further disadvantage to the traditional olive grove, as it gets a much smaller subvention than the intensive one.

So objective technical and market conditions – reinforced instead of balanced by the CAP – made impossible to the traditional olive groves to compete with the new intensive ones. The new, intensive olive groves were classified by a DG-Environment European Commission report as the number one cause for soil erosion in Spain, washing annually millions of tones of earth from the fragile Mediterranean soil to the sea. They also represent a drain on scarce water resources, they have a negative effect on biodiversity and, last but not least, they are not beautiful in the landscape as the old ones are.

But if these obvious failures of policy were not important enough, the budget control framework of the European legislation made things considerably worse. Either because the Commission once proposed to replace the payments per olive quantity by a payment per olive tree – proposal flatly refused by the industry – or for some other less transparent reason, the budget control mechanisms of the Commission rely solely on counting the number of olive trees.

As an explanation for this extraordinary practice, the Commission said that counting the number of trees was an indirect way of counting olives, assuming approximate fixed productivities per tree in each particular region. This is sheer nonsense for two reasons: the first is that the main variable on which productivity depends is the intensification degree, not the region where an olive grove is situated; the second is that with extensive methods variability is very high depending on climate variations.

However it goes beyond belief the enormous amounts of effort and public funds put behind this absurd task of counting olive trees. Brussels gossips – completely out of the blue – were that plastic trees were being planted in Italy to deceive the controllers. This would have been double foolishness, as a real olive tree is cheaper than a plastic one and no-one ever got a cent from the European Budget for having an olive tree, but only from producing olives, and plastic trees do not produce them as real olive trees do. The first thing I was told when I bought my olive grove was that I should be very careful in stating a number of trees considerably lower than reality. Otherwise, I would risk seeing the controllers coming, deciding several of my olives were not in good production capacity and condemn me as a fraudster. In the olive oil business fraud comes from making olive-oil without olives, not olives from plastic or almond trees, as it is apparently reasoned by the Commission.

Fraud in olive oil traditionally attains alarming levels, much higher than in milk products or wine, two of the other traditional victims. According to a press report I quoted in a Parliamentary question to the Commission, falsification of olive oil reach 50% levels in some European markets. The Commission was not impressed, and answered this was a detail for member states to be concerned with.

From all of this, I think we can understand what should be done on this sector, quite differently from what as been done lately.

1. Limit market intervention to exceptional circumstances. Do not make a system out of it. If the crisis situation lasts, think of structural measures;

2. Phase out existing subventions and replace them by a system that rewards olive production for (1) biodiversity enhancement; (2) soil conservation and (3) water saving;

3. Promote or subvention research in technologies that will increase human productivity with extensive use of natural elements;

4. Promote or subvention the personal or collective use of machinery that replace burning and pesticides.

5. Couple these measures with rural policy and social policy towards those who will not be able to keep the market competition pressure, as Sicco Mansholt thought necessary from the beginning.

6. Make war on those who make olive-oil without olives, stop harassing farmers for ludicrous reasons;

7. One of the last but very important decisions of former Commissioner Fisher Böel was to send her staff for visits in the countryside. Enlarge the measure to the other European institutions, everyone being invited to reflect all of these issues walking along old olive groves… Be my guest!

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.