The U.S. has agreed on a $2 trillion stimulus package, the largest economic stimulus in its history, in response to the economic impacts of Covid-19. U.S. farm groups lobbied hard to be included in the package, and $23.5 billion was included in the final package for farm aid. This farm aid comes on top of the two trade aid packages of $12 billion and $16 billion introduced by the Trump Administration in 2018 and 2019, respectively, to provide relief to commodity producers hurt by the retaliatory tariffs introduced by various countries in response to tariffs on their exports to the U.S.
One of the many issues that will need to be resolved when Heads of State and Government get around to once again considering the Multi-annual Financial Framework (MFF) 2021-2027 is what position to take on the external convergence of CAP direct payments.
The Commission has proposed a further narrowing of the differences in the average value of direct payments per hectare between Member States in the post-2020 CAP framework. For a number of countries from Central and Eastern Europe nothing less than full equality by the end of the MFF period will be acceptable. There is equally strong push-back from another group of Member States that argue there should be no further reductions in the CAP joint pillar allocations for the purpose of redistribution among Member States.
We are pleased to welcome this post which has been written by Jabier Ruiz, who is Senior Policy Officer, Agriculture and Sustainable Food Systems at the European Policy Office of WWF in Brussels.
Internal convergence: a multi-faceted obligation
In recent reforms of the Common Agricultural Policy, and of the Multiannual Financial Framework, the (external) convergence of decoupled direct payments across EU member states is always a very sensitive political topic. This issue has been covered extensively in this blog (for example, here and here). There is much less awareness and discussion on the topic of internal convergence, another obligation existing in the current (and future) CAP and which aims to progressively equalise the value of decoupled direct payment entitlements (€ per hectare) within each Member State or region.
DG AGRI has published its latest breakdown of the distribution of direct payments in financial year (FY) 2017, which refers to payments made to farmers in the claim year (CY) 2016. The report itself has less text than usual, but lots of graphs showing the distributions of payments and recipients for the EU28 and by country. The detailed tables showing the numbers behind these graphs are given in the statistical annex.
A couple of points are worth remarking. The tables distinguish between the distribution of decoupled payments, other direct payments and total direct payments. The decoupled payments include the basic payment, greening payment, redistributive payment, young farmers’ payment, and the payment to areas facing natural constraints in Pillar 1.
Capping of direct payments is not the only instrument proposed by the Commission to allocate more support to small and medium-sized farms. In addition to a mandatory ‘basic income support for sustainability’, the Commission CAP proposal would also require Member States to introduce a ‘complementary redistributive income support for sustainability’. This redistributive payment is currently voluntary under the 2014-2020 CAP.
Under the current CAP, the redistributive payment is applied by 9 Member States: BE-Wallonia, BG, DE, FR, HR, LT, PL, RO and UK-Wales. The financial allocation to the scheme takes up from 0.5% to 15% of the Member States national ceiling for direct payments.
I want to revert to the topic of the capping of direct payments under the CAP, which I last discussed here and here. It is not the most important issue in the Commission’s legislative proposals for the CAP after 2020. But the issue of the fairness of direct payments was raised as an issue in the CAP Communication, and the proposed capping has been defended as a significant step in the better targeting of these payments. There is thus some interest in asking how effective it is likely to be.
The current situation
The current situation reflecting the distribution of payments in claim year 2015 is shown in the following graph.
Wales is one of the three devolved government regions which along with England make up the four countries in the UK. Its agricultural sector is, in absolute terms, small. Around 38,400 holdings farm an area of 1.9 million hectares, with an average farm size of 49 hectares. Just over 15,000 of these holdings receive support under Pillar 1 of the CAP as many of them are deemed to be ‘very small’ with insignificant agricultural activity. These farms produce output valued at £1.6 billion in 2017, contributing a gross value added of €457 million and a total income from farming (TIFF) of £276 million in that year (statistics taken from Wales Statistics and Research, Farming Facts and Figures, Wales 2018 and the Aggregate agricultural output and income web page).
Commissioner Hogan confirmed in his press conference folllowing the publication of the Commission’s proposal on the next Multi-annual Financial Framework that the Commission intends to introduce a cap of €60,000 on the maximum amount of direct payments any holding can receive in the next CAP legislative period. Commission President Juncker is reported as telling the Belgian Parliament earlier this week that “the European Commission will propose a €60,000 limit on individual direct payments to support small farm holdings instead of ‘agricultural factories’”. These statements are misleading and disingenuous, because they ignore what is likely to be the fine-print in the Commission proposal.
Please note that the key chart in this post (the third chart, comparing the CAP ceiling in 2027 with that in 2020, has been updated using Commission figures in this post.
The Commission’s MFF proposal (including both ceilings for expenditure as well as ideas on how to finance the budget) was published yesterday. The Commission claims that the proposal includes reductions of roughly 5% in both the Common Agricultural Policy and Cohesion Policy programmes, as they have the largest financial envelopes. However, another way of looking at the numbers suggests that the cut is more like 15% overall in real terms over the period of the next MFF, but with a much bigger cut in Pillar 2 rural development expenditure of around 26%.
The Commission published its Communication The future of food and farming in November 2017 following an extensive public consultation process. Legislative proposals accompanied by an impact assessment are expected at the end of May. At the same time, the UK is preparing for life after Brexit. To this end, the UK Department for the Environment, Food and Rural Affairs (DEFRA) published a Command Paper (consultation document) on February 27 seeking views on a future post-Brexit agricultural policy. The paper provides a clear direction of travel for UK, or at least, England’s future agricultural policy, and will result in a White Paper and legislation in the form of an Agricultural Bill later in this parliamentary session.