On 18 October, French Environment Minister Jean-Louis Borloo and Sustainable Development Minister Chantal Jouanno put their names to a 16-page reform proposal that would see France’s current annual €10 billion a year in CAP payments be divided between basic income payments with environmental compliance (€3 billion), farmland conservation contracts (€6 billion) and food chain and price safety nets (€1 billion). This would be a radical redistribution. Currently 90 per cent of CAP spending in France is in the form of direct aids and market measures, with only ten per cent spent on farmland conservation and rural development.

For more detail on the proposals see Valentin’s earlier blog post.

Naturally, the publication of such a radical proposal was met with howls of dismay from the Ministry of Agriculture and its sponsors, the mainstream farm unions. Barely a month previously, the Agriculture Ministry had put its name to an altogether different, more conservative joint position with the German Agriculture Ministry. In the struggle that ensued, the environment ministers were forced to back-pedal and remove the offending document, even though it was warmly received by other stakeholders.

Nothing on the internet can ever be erased and the document is still available on the links below. It remains to be seen just which version of the French government position will prevail as we head into the next stage of the negotiations. French President Nicolas Sarkozy is said to have joked that France has two commissioners in the current college: Dacian Ciolos (agriculture) and Michel Barnier (single market). With a government so divided, perhaps he’ll need them.

Hat Tip: www.pouruneautrepac.fr

Downloads:

Proposal

Accompanying letter from Environment Minister Jean-Louis Borloo

The money is allocated to several instruments (doing away with the traditional two-pillar structure):

* €3 billion for direct income support, available to all farmers in the EU at an equal level, without any historic base. National governments could have the possibility to top up these payments. A flexible component could be introduced to soften fluctuation in prices and regional yields. The eco-conditionality (respect of good agricultural and environmental conditions) shall be tightened.
* €4 billion for environmental services, notably the protection of the climate, biodiversity and water. One part of these payments is available to all preferable farming systems (organic, high nature value, leguminous plants, foraging, low input). Another part is limited to special areas (less advantaged areas, Natura 2000 etc).
* €2 billion to boost the transition towards more sustainable farming. This covers the conversion to preferable farming systems, green investments, innovation and collective responses to local challenges.
* €0.5 billion for food policy. The objective is to promote high-quality, responsible and local consumption through labeling, consumer education, food stamps and investments, for instance in local markets.
* €0.5 billion for security nets and market intervention. Interestingly, the Ministry warns against blanket subsidies for insurances as this can push farmers towards high-risk, high-intensity farming. Only insurances that reward sound environment stewardship should be subsidized.

The Ministry also recalls the polluter pays principle and proposes to consider taxes on the harmful aspects of farming.

There are some elements that raise concern. One is the continuation of fully EU-financed direct payments. However, the proposed drastic cuts to the direct payments combined with stricter eco-conditionality make this tolerable. Another problematic point is the idea to move away from co-financing of agri-environmental measures towards full EU-financing. Furthermore, one phrase about renewed Community preferences (reduced market access for foreign farmers in French parlance) may raise concern (though it may also be discarded as conforming to French political correctness).

The actual proposals are incompatible with French claims to €10 billion: an EU flat-rate income support would bind most CAP money in member states that currently have low CAP entitlements, leaving little for the environmental objectives. And it would be difficult to justify why environmental payments in France – fully EU-financed as they supposedly serve European public goods – grossly exceed payments in other member states.

Despite some minor flaws and tactical compromises, this is a great document. It is amazingly out of line with the position established by the French Ministry of agriculture and espoused in the Franco-German position paper. Let us hope that other ministries of the environment have the same guts! Why not a Franco-German paper for a green CAP? Or even a joint declaration by 27 ministries of the environment?

The position paper can be downloaded in French here.

- The common position endorses further moves towards greater market orientation in the CAP but suggests countervailing measures are needed “to buffer devastating effects of growing price volatility and market crises”.

- There is nothing concrete on the future budget of the CAP and it is stressed that “a final decision on all questions relating to finances will be made when decisions are made on all policies and the entire EU financial framework”. In other words, there is not going to be another stitch-up like the Chirac-Schroeder deal of 2002 which effectively fixed the CAP budget for the next 11 years, short-circuiting the normal EU budget-setting processes.

- The two pillar structure of the CAP should be maintained, and no national co-financing should be required of pillar one expenditure (i.e. direct payments and market measures). This is something of a surprise, coming as it does from Germany, the major net contributor to the CAP and France, that is soon to become a net contributor. Co-financing is one way for net contributor countries to improve their budget balances.

- Once the budgets of the two pillars have been decided, there should be no need for modulation of funds between the pillars.

- While new measures may be needed to meet new challenges and objectives, these must “take very carefully into account the financial implications for each Member State.”

- It is argued that “EU standards must be met by all imported products” though it is not clear whether this relates to methods of production or EU sanitary and phytosanitary standards, which imports must meet already.

- The common position states that “In some sectors we need more transparency and more market power for the producer” and suggests some methods by which this could be achieved.

- “Decoupled payments have to remain central in any future system.” The common position argues that “direct payments provide remuneration for public goods that are not rewarded by the market, cover production cost caused by higher production standards desired by society and they contribute to the income of farmers and are an essential part of the risk reducing safety net for European agriculture”. France and Germany reject “EU-wide flat rate” for direct payments and argue that direct payment rates are to be set with regard to net budget positions of member states. Effectively, this is France and Germany saying they don’t want to pay any more for direct payments to Polish and Romanian farmers.

- Member states should investigate, on a voluntary basis, insurance and mutual funds, as a method for stabilising farm incomes over time.

- The countries support greater national flexibility in rural development policies and in “distribution of direct payments within a Member State”.

What should we make of the common position? It reads rather as though France’s main priority is to secure its own position on the CAP, which is to preserve the status quo with the addition of measures of the kind that were introduced as emergency measures during last year’s milk price crash. Germany, which also has concerns about price volatility, is additionally looking to constrain the CAP budget (and the EU budget more widely) and protect its national budgetary position.

The 5-page document can be downloaded from here (PDF).

Trading farm subsidies for ‘community preference’ was quite a bad idea, to declare a farming war on Europe might be an even worse one. Commodity markets – in certain respects like financial ones – tend to be volatile, and, as in many other economic areas, competition in agricultural products tends to be harsh. Agriculture, an activity largely based on family structures, suffers heavily from this situation. If the modern welfare state devised employment benefits and a large set of social mechanisms to address negative market outcomes, policy interventions in farming communities use different instruments, but aim at similar objectives.

To insulate agriculture from international trade is the oldest and still the most common way to face these situations, an instrument whose scope was slowly but substantially diminished since the end of last century.

The present economic crisis led many in the Western World to have second thoughts on the liberalisation they promoted.
Can we really allow financial institutions to act as they wish only for the tax-payer to pay the bill when their decisions prove to have been reckless? Does it really make sense to exclude currency policy from the framework of trade negotiations? Can we consider the Asian economic giants as least developed countries exempted from trade liberalisation in food products and in assuming full environmental and other responsibilities at World level?

Personally, I am far from convinced that our Western leaders gave full attention to these problems or found the best way to address them. In my opinion, we need to consider stricter regulatory frameworks in some cases and more balanced approaches to trade, currency and financial matters in other cases.

However, it does not mean that going backwards is a possible outcome or that it might be conceived as a solution to our problems. When Mr. Sarkozy despises any new deals at the WTO level and demands protectionism in agriculture he comforts Asian agricultural protectionism and refuses to consider changes to the current, flawed system of international trade.

A couple years ago, while in Taiwan, I was amazed at the impressive increase in the demand of dairy products. At the time the existing statistics revealed that the Taiwanese per-capita consumption of dairy products was something like 50 times the figure for mainland China.

Did Mr. Sarkozy ever thought what could this mean for the famous hundreds of different French cheeses to have a real opening into the Chinese market? And what does Mr. Sarkozy expect to keep out of the French territory by his closed borders policy? Brazilian soya beans and Argentinian beef? Shouldn’t it be obvious that the more the French agriculture will be turned to the rest of the World, the more it can take advantage of its quality products with high value added?

Who, more than the French food industry, will be hurt by a closed borders policy? Not by chance, in the same speech where Mr. Sarkozy announced his will to trade a diminishing European budget for a fortress Europe, he announced another handout of 50 million euros to French farmers.

What is quite obvious in Mr. Sarkozy’s intentions is the will to renationalize ever more the European agricultural policy, replacing the European budget – that is increasingly being fully shared with twenty six other EU member states – by the French national budget.

Yesterday, Mr. Sarkozy recalled last year’s dramatic decrease in French farm revenue to conclude that he would wage a war in Europe rather than allow to a dismembering of existing Common Agricultural Policy. The undoing of the oldest and more common European policy would be another blow not only to Europe but also to its agriculture, but does that mean we should leave it unchanged? After all, wasn’t it under the existing CAP that farm incomes tumbled last year in France? Doesn’t it mean we really need to think it over again?

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.

Among the losers was French Agriculture Minister Bruno Le Maire (pictured, right), who was rejected by voters of Normandy, where he was standing for election as Regional President. Had he been succesful he would have stepped down as national farms minister. It now means he’s likely to stay on in the post and continue as France’s main man in the negotiations on the reform of the CAP.

Photo credit: Bruno Le Maire / flickr.com / creative commons

Instead, he proposed to the other EU partners a deal whereby France would be flexible on the share of the next financial perspective going to agriculture provided that this was balanced by more rigorous Community preference which, implicitly would lead to a higher market return. His argument is that if third country producers had to respect the high environmental, traceability and animal welfare rules which must be respected by European producers, then European farmers would be able to compete on price alone.

There are two issues with this argument. The first is whether the argument itself holds up. We can observe that controlling imports is only effective as a way of raising the EU price where the EU is a deficit importer; for those products where the EU is a net exporter, the EU price (assuming the absence of export subsidies) is determined on world markets where the EU cannot enforce its own standards.

Even in the case of a product like beef, where the EU is now a deficit importer, it is questionable how significant the price effect of demanding higher standards of imports would be. Only twelve countries are allowed to export beef to the EU at present in any case under existing rules. Of course, some of these, such as Brazil, have major export capacity. Already in Brazil, individual farms are registered and can comply with EU internal standards in order to gain access to the lucrative EU market. While it would be costly to meet the additional EU standards, the additional cost would not be a major disadvantage

The second issue with the Sarkozy approach is that it would fall foul of WTO trade rules. These rules allow the EU to take steps to control imports for health and safety reasons, and the EU makes clear that its existing rules do this more than adequately. Requiring a particular approach to animal welfare, or requiring observance of environmental standards, might improve things in Brazil, but WTO rules do not give one country a right to dictate non-essential standards in another country. This is, of course, also a protection for EU exporters against arbitrary demands from other importing countries.

While France has long sought stricter standards on imports, this is the first time it has indicated that it might be willing to trade off expenditure on agricultural subsidies for such higher standards. Does this represent a sign of some new flexibility in French thinking? What do French farm organisations think of the proposal?

The Ministry of agriculture seems sympathetic with this position, even though Nicolas Sarkozy has recently positioned himself as greener than his predecessors, with initiatives under a framework law called the “Grenelle of the environment” and a carbon tax (it turns out that farmers should be exempted from paying this tax, eventually). The French minister Bruno Le Maire apparently said a few days after that, indeed, a revision of the agri-environmental measures (AEM) was necessary and that it should start with an inventory of the provisions adopted throughout the Union according to the newspaper Le Figaro. On January 13 Le Maire unveiled a proposal for a new agricultural law to be discussed by the Parliament with little apparent concern for the protection of the environment.

The idea of suspending agri-environmental measures is bizarre, given that they are voluntary measures that are highly appreciated by farmers in some regions, providing often a third or more of the farm incomes in mountainous regions for example. So what did the FNSEA president actually mean? After some inquiry, it seems that he actually used the term “agri-environmental measures” for CAP jargon ignorant journalists. He was not in fact targeting the AEMs, i.e. second pillar measures, but rather the GAECs (Good Agri-Environmental Conditions, i.e. a set of technical constraints that farmers needed to respect in order to receive the Single Farm Payments, under Pillar 1, part of what is sometimes known as cross-compliance), as well as “any element of regulation that imposes environmental constraints such as the Nitrate Directive, or national measures under the new Grenelle law framewok” (FNSEA sources). Le Metayer argued in the interview that because of low prices and low incomes, farmers could not afford the ever growing stream of environmental regulations.

To FNSEA’s defense, some of the constraints imposed in 2009 turned out to be ill-designed in some regions. For example, farmers had to plant intermediate crops between harvests so as to keep soil covered and reduce nitrate leaching. In some areas, the lack of rain when these crops were planted resulted in extra costs without any environmental benefit. However, the FNSEA position sends an awkward signal regarding farmers’ image in the public opinion, while water pollution with nitrates makes headlines every summer. More worryingly, Le Metayer’s demand shows how much the the anti-environmental stance is widespread among the mainstream French farm lobby (another farmer’s union, the Coordination Rurale runs perhaps an even more anti-environmental program than the FNSEA). The FNSEA is highly representative and about to win again a majority in one of the main instances that co-manage the agricultural sector with the government in France. Only a minority of farmers belonging to the left wing Conféderation Paysanne seems in favour of a greener CAP, but their position regarding market regulation makes them hardly credible in the European debate (they favour a system of generalized quotas and a complex set of coupled payments restricted to small farms). A fringe of enlightened entrepreneurial farmers, the Société des Agriculteurs de France is open to produce public goods as much as wheat if the CAP pays them for that, but this is more a think tank than a powerful union.

It is hard to make predictions regarding the future behaviour of France as far as the coming debate on the CAP is concerned. With France becoming a net contributor to the CAP, the unholy alliance between the ministry and agriculture and the ministry of finance to defend large CAP budget is about to end. The former minister, Michel Barnier, used Health Check flexibility to reallocate 1.4 billion euro of Single Farm Payments towards the extensive grass-fed livestock sector. This has turned the powerful cereal producers against the government. Given that farm incomes have decreased much more than the EU average in 2009, the Ministry of agriculture can hardly afford more radicalization of the farmers, and his apparent scorn for environmental causes is perhaps tactic. However the historical aversion of the FNSEA for the environment has been particularly effective in the past. France will certainly resist any greening of the CAP in the future.

The countries attending were those which had supported the call by France and Germany for stronger measures to support dairy farmers in October this year. The meeting took place in the shadow of the start of the debate on the next financial perspective, and was in part a reaction to the leaked Commission reflections in October on the parameters for the next financial perspective, which foresaw a substantial reduction in the CAP budget.

However, the Declaration itself is merely a restatement of well-known views on the role played by European agriculture in Europe’s economy and society and adds nothing to the debate. As Ministers departed, it was clear that they were unable to draw up any list of concrete conclusions and demands. As Minister Le Maire ruefully noted: “It’s not easy to reach an accord within 22 states that defend their different options”

The Spanish Presidency which begins on 1 January has announced that it will hold two councils devoted to reflections on the future of the CAP which may give more opportunity for all member states to set out their views.

According to Xavier Poux, author of the profile,

France believes a post-2013 CAP needs to be re-legitimised, but should retain the same overall shape at EU level as at the moment (i.e. direct payments and market interventions through Pillar 1 and rural development measures through Pillar 2).

France’s main objective during the ‘health check’ was to legitimate the CAP by shifting money around, principally away from wealthy (mostly crop) producers to farmers facing harder times (mostly grassland beef and sheep farmers, especially on marginal lands). To this end, France is making use of modulation, articles 63 & 68 to shift “nearly 14% of existing Pillar 1 payments” according to this logic. As to plans for beyond 2013, the picture is less clear. Unlike the UK, Netherlands & Sweden, France has not set out a vision for the CAP. As Poux puts it:

It is as if most of the French government’s energy went into the CAP Health Check process and the French Ministry of Agriculture could not see any further.

When France does set out its vision it will retain a strong link to supporting particular patterns of production, with environmental and social-territorial bolt-ons. This will likely set France against the ‘true decouplers’ who would see farmers freed to produce exactly what the market demands, income support phased out and any remaining public money for agriculture targeted at narrowly defined public goods such as biodiversity, landscape and soil & water conservation. As things stand in the Council, France has more allies than the radical reformers and, under Minister Barnier, has more effective at working those alliances and navigating the complex intergovernmental and inter-institutional politics of European farm policy.

Link: France reform profile.