Measuring farmers’ dependence on public payments

There is considerable interest in the amount of support that farmers in the EU receive through public payments. The Commission in its MFF proposal in May 2018 proposed a reduction in the CAP budget (partially offset by increased co-financing contributions from Member States). Member States in the AGRIFISH Council and farm unions as well as the European Parliament have pushed back against this reduction.

A French Memorandum presented to the June 2018 meeting of the AGRIFISH Council asserts that “this decrease on both pillars would undoubtedly threaten the viability of European farms, the income of farmers and their ability to meet the citizen requirements for a healthy, sustainable, affordable and quality food as well as protection of environment and adaptation to climate change”.

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How to improve the CAP’s environmental performance post 2020

We are pleased to welcome this guest post by Faustine Bas-Defossez, IEEP Head of agriculture and land management program, and Kaley Hart, IEEP Senior fellow, who summarise the findings of a recent IEEP report CAP 2021-27: Proposals for increasing its environmental and climate ambition.

Although the CAP is the key EU funding mechanism to support environmental and climate action in the EU agricultural and forest sectors, efforts so far to green this strategic policy have not been sufficient to outweigh the pressures facing the farmed environment. As the EU just published its long term strategy for a climate neutral economy, emissions of greenhouse gasses from agriculture, including the livestock sector, are stubbornly high.

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Update on the budgetary framework for the CAP post 2020 negotiations

As with the 2013 reform, the legislative process for the Commission’s CAP post 2020 proposal runs parallel to the discussions on its Multi-annual Financial Framework (MFF) proposal. This parallel process creates three complications for the CAP post 2020 negotiations.

The first is that the timing of the agreement on the MFF influences the timeline for concluding the CAP negotiations (let us call this the sequencing issue).

The second is that the size of the CAP budget is not known when the details of the CAP legislation are being negotiated (I refer to this as the budget issue). Uncertainty over the budget may bias the negotiations towards a more conservative CAP, in the sense of one with a lower level of environmental and climate ambition.

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State aid rules and the CAP 2020 legislation

State aid rules play an important role in the management of the single market. State aid is defined as any advantage granted by public authorities through state resources on a selective basis to any organisations that could potentially distort competition and trade in the EU. Unless otherwise permitted, State aid is viewed as incompatible with the single market and is prohibited. However, the Treaty leaves room for the granting of State aid in respect of several policy objectives, considering the possibility of market failures and the need for a well-functioning and equitable economy. For example, of relevance to the agricultural sector and forestry, the Treaty considers aid to make good the damage caused by natural disasters or exceptional occurrences as compatible with the single market.

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Market and trade effects of the next CAP reform

It is not possible to be definitive about the market and trade effects of the next CAP reform, for two reasons. One is that the Commission’s legislative proposal published in June 2018 is just that, a proposal, that may well be altered, even quite radically, before the new CAP regulations are agreed. The other is that, under the Commission’s proposal, Member States are given significantly more flexibility than they have at present to craft their own agricultural policy interventions in the context of their CAP Strategic Plans. Until these Plans are approved, it is not possible to predict, inter alia, the level of environmental and climate ambition that EU farmers will be asked to meet after 2020, the extent of targeting and redistribution of Pillar 1 direct payments, or the use that will be made of coupled payments.

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Member State CAP allocations and progress on the MFF

The Commission’s presentation of its CAP legislative proposals in June 2018 includes Annexes setting out the Member State allocations both for Pillar 1 direct payments (Annex IV of the draft CAP Strategic Plan Regulation) and Pillar 2 rural development (Annex IX of the same draft Regulation). In its draft legislative proposals for the 2013 CAP reform, the Commission had also included an Annex setting out the Pillar 1 Member State allocations (based on the external convergence formula that it had put forward in its MFF proposal a couple of months previously).

But this was not the case for Pillar 2 allocations.

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Evaluating the legislative basis for the new CAP Strategic Plans

The main novelty in the Commission’s legislative proposals for the CAP after 2020 is the New Delivery Model (NDM) which has been described by Commissioner Hogan as representing a shift from a compliance-based to a performance-based or results-based governance system for the CAP.

As set out in a recital to the CAP legislation: “In the CAP based on delivery of performance (‘delivery model’), the Union should set the basic policy parameters, such as objectives of the CAP and basic requirements, while Member States should bear greater responsibility as to how they meet the objectives and achieve targets. Enhanced subsidiarity makes it possible to better take into account local conditions and needs, tailoring the support to maximise the contribution to Union objectives.”

The key instrument designed to underpin the NDM will be the requirement for each Member State to draw up a Strategic Plan setting out its assessment of needs, the specific CAP objectives it intends to address, its intervention strategy including the targets it intends to achieve with respect to these objectives, and the interventions it plans to use.

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Recent trends in EU WTO domestic support notifications

The EU submitted its latest domestic support notification to the WTO for the 2015/16 marketing year on 23 August last. This notification is interesting because it covers the first full year of operation of the new CAP in 2015, as the new direct payments architecture was first implemented in that year. This post examines the trends in domestic support in this and recent notifications, and speculates on how the figures might be affected by the Commission’s legislative proposals for the CAP announced on 1 June last.

Trend in overall domestic support

The broad trends in domestic support provided to EU agriculture according to the WTO classification is shown in the Figure below.

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CAP spending in the next MFF

Last week, the European Parliament secretariat (Policy Department for Structural and Cohesion Policies) presented a briefing authored by Albert Massot and Francois Negre to the AGRI Committee comparing the Commission’s CAP legislative proposals for the period after 2020 with the current regulations. It consists of two documents: a relatively short contextual statement, and an annex containing six ‘Dashboards’ which in a two-column format set out in specific detail how the CAP reform package (2021-2027) proposed by the Commission on 1st June 2018 compares with the current CAP (2014-2020) regulations, topic by topic. It makes a very useful contribution in structuring the debate around the Commission’s CAP proposals.

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The redistributive payment is more effective at redistribution

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.

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