The EP own-initiative report on the post-2013 CAP is taking shape as a new draft has become available (dated 24.3.2010). Though it is better packaged, and sexed-up with a ‘green growth’ tag, the content is just as dull and conservative as the earlier draft. The report captures the intellectual deficiency of the CAP-insider bubble.

The draft report suggests 5 ‘key building blocks’: area-based direct income support, climate change mitigation payments, payments to areas with natural handicaps, payments for biodiversity and environmental protection, and green growth subsidies with a focus on renewable energy. The first two payments are to be fully financed by the EU, and the other three co-financed by the member states.

I will not go into the reports’ food-security and fair-income arguments (though they thoroughly deserve criticism) but will limit myself to commenting on some peculiar lines of reasoning that are considered to prop up the case for a strong CAP.

whereas the share of CAP expenditure in the EU budget has steadily decreased from nearly 75% in 1985 to a projected 39.3% in 2013; whereas this represents less than 0.45% of the EU’s GDP; whereas the decline in budgetary expenditure on market measures is even more significant – from 74% of all CAP expenditure in 1992 to less than 10% at present;

“Measured against the EU budget and GDP, we are wasting less money today than in the past.” This is correct as an empirical assertion about past policy changes. It is not an argument that could justify the expenditure of a single euro on the CAP. Maybe 0.0% is the right spending target. It could theoretically also be optimal to spend 1.0% of GDP on agriculture through the CAP. Whatever the right solution is, reference to past spending levels is not acceptable as an argument in the debate about desirable future policy choices.

whereas the EU continues to experience a widening trade deficit in agricultural products

and

insists that EU agriculture must remain competitive against fierce competition from well-subsidised trade partners; therefore believes that competitiveness should still be a fundamental objective of the CAP post-2013 to ensure that the EU has the raw materials to produce high-value European food products and they continue to win a greater share of the world market

Where is the problem with a trade deficit in agriculture? And why should the EU gain shares in world agricultural markets? The basic assumption of economists is that each country benefits if it specializes according to its comparative advantage. In those developing countries where the most competitive sector happens to be agriculture, governments are often skeptic about excessive specialization and prefer a more complex economic argument based on the dynamic gains of investing in manufacturing and service sectors that allow their country to climb up the value chain in the future. But the EU’s competitive advantage is much more concentrated in high-value-added sectors (high-tech, professional services, luxury goods, research and innovation). In other words: we are lucky. It makes no sense to work against this specialization and export more agricultural products. Since trade accounts roughly balance in the long-term, more agricultural exports would automatically imply fewer exports of these high-value-added products and services in which the EU enjoys a comparative advantage.

recalls, therefore, that unless farming activity is preserved across the EU, no provision of public goods will be possible;

and

insists that the cost of support through a strong CAP is nothing compared to the costs of no action and its negative unintended consequences;

The death of European agriculture is again at the doorstep. The day the CAP is abolished, there is no country to walk in, no food to eat, no water to drink, no air to breathe. These wild beliefs can be divided into two ‘analytical’ steps: first, that agriculture would actually collapse, and second, that this would create overwhelming problems. In reality, agricultural production will most likely continue to grow – with or without policy support (see DG Agri study: Don’t be afraid of liberalization and Crystal ball gazing: Scenar II study on the effects of CAP reform). If agricultural production were to decline dramatically, this would cause some problems – but it would also create great benefits, notably in terms of water quality and climate change (though this depends on second-order effects abroad). But CAP supporters rarely say “We believe that without the CAP, there would be a slight decrease in production, and this would have negative effects on balance.” They almost inevitably turn to the dramatic – “unless farming activity is preserved across the EU, no provision of public goods will be possible” – a situation that would be so horrible that the €55 billion we are paying every year must be deemed nothing short of “nothing”.

I have criticized three points: the reference to past spending as a justification for future spending; the blindly mercatintilist appetite for world market shares; and the all-or-nothing drama when it comes to the survival of European agriculture and the public goods that depend on it. Together, they are examples of a fundamental problem in EU agricultural policy-making: the CAP debate is taking place in a bubble. Agricultural ministries, DG Agri, the EP Committee on Agriculture, farmers, the landowners and rural interests reinforce each other in the CAP-insider community. Radically critical voices are sidelined. The CAP is made within a bubble by people who want to keep the CAP as it stands or to reform it as much as is necessary to preserve it. Lines of arguments such as those I have picked out above can prosper in such an environment. Strikingly unsound statements, which would, in other policy domains, be dismissed with laughter as intellectually deficient, are the respectable mainstream in agriculture.

Agricultural ministers of the OECD met in late February 2010 – the first time since 1998 – and issued a communiqué that touches on everything and says close to nothing. For once, such an empty statement is perfectly fine. The OECD Secretariat doesn’t need its ministers in order to do an excellent job in providing intellectual guidance and hard data.

The flagship of OECD research is certainly the country-level analysis of agricultural policies, based on Producer and Consumer Support Estimates and enriched by a brief description of recent policy developments in the report on Agricultural Policies in OECD Countries: Monitoring and Evaluation 2009.

New research on the CAP has been presented at an OECD Workshop on the Disaggregated Impacts of CAP Reform in March 2010.

The OECD also prepares a regular report on the Environmental Performance of Agriculture.

Equally important are the thematic research pieces. A 2009 piece on the ‘Adjustment Options and Strategies in the Context of Agricultural Policy Reform and Trade Liberalisation’ compares the liberalization experience in various OECD countries. It concludes that the agricultural sector frequently adapts better to liberalization than expected (greater efficiency, higher quality, different products), so that the need for adjustment policies is often overestimated. Policies to encourage exit from the agricultural sector are beset with the problem of windfall profits (payments for actors that would have left the sector anyway). Adjustment policies should rely, wherever possible, on generally available adjustment measures, including through the social security and tax system.

Especially interesting is the case of sectoral adjustment policies in Australia. The Farm Family Restart Scheme (FFRS) – now renamed into “AAA Farm Help – Supporting Families Through Change” – assists “low-income farmers who cannot borrow against their assets by giving them access to improved welfare support, as well as adjustment assistance for those who wish to leave the industry. It included income support for a maximum period of one year, grant of up to AUD 45 000 for those wishing to leave farming, access to professional advice on the future viability of the farm business, and other forms of counselling. The FFRS operates as a decision support system for farmers considering exiting the industry by giving them access to professional advice on the future viability of their business and on employment opportunities if they choose to exit the industry.“ Quite different from EU round-about handouts!

Another OECD work published in 2009, ‘Managing Risk in Agriculture: A Holistic Approach’, assesses the sources of risks, discusses private and public risk management tools and offers an overview of the implementation of risk management tools in OECD countries. It reveals the complexity of risk management and calls for prudence in designing governmental schemes (so as not to encourage risk-taking and replace private risk management mechanisms).

‘The Implementation Costs of Agricultural Policies’, published in 2007, finds that the advantages of targeting policies at desired outcomes outweigh the increased transaction costs of implementation for a very broad range of parameters. Furthermore, transaction costs can be much reduced through best practices (especially by the use of information technologies). This undermines the standard argument that the need to avoid excessive transaction costs makes a blunt policy like the Single Farm Payment inevitable.

Five leading European farming and environmental NGOs, who between them boast several million members, have jointly published a blueprint for a new Common Agricultural Policy. In an unusual and very modern step, they have published a draft proposal and opened it for consultation. They will produce a final version in 2010. The proposal, which runs to 28 pages, is for a radical reorientation of the CAP away from a productivist and income support model towards a ‘public money for public goods’ ethos. [...]

Earlier in the month I wrote that Agriculture Commissioner Mariann Fischer Boel was holding the line against protesting dairy farmers and a clutch of national agriculture ministers looking for more aid for their troubled farmers. It looks as though I spoke too soon. At this month’s farm council, Commissioner Fischer Boel found a further 280 million euro from the 2010 budget to give to dairy farmers, in addition to measures announced last month. [...]

This afternoon I did a pre-recorded interview with BBC Radio 4’s Farming Today programme. The subject was the House of Lords report on the 2010 EU budget, which says too much money is being spent on agriculture. The first question I was asked by the presenter shows how deeply the new (old) productivism has taken root over the past year. I was asked something along the lines of “Given the fears about food security, don’t we need a well-funded agriculture sector?”. [...]

The anti-EU agitprop outfit Open Europe has been huffing and puffing over the golden goodbyes that await those European Commissioners who will be put out to pasture when the current Commission’s five year mandate comes to an end later this year. Among their number is thought to be our own Agriculture Commissioner, Mariann Fischer Boel who, after five years of service in Brussels stands to receive approximately 270,000 euros of ‘transition money’ before her 43,000 euro a year pension kicks in.

The 66-year old Dane, who sports a trademark shock of snow white hair, has invoked the spirit of Hollywood actress Jennifer Aniston in the L’Oréal commercials, insisting the payout is entirely justifiable “because I’m worth it”. It’s just as well that the Commission scheme is so generous since Fischer Boel, who together with her husband owns several large livestock farms, is too old to qualify for the EU-funded early retirement scheme for farmers, which pays out a maximum of €18,000 a year to farmers who quit before turning 55. The typical ruse is for farmers approaching 55 to “retire” and apply for the early retirement money while passing the legal title of the farm on to a son or daughter who, in all likelihood, will qualify for an EU-funded young farmers startup grant worth up to €40,000. Both continue to work on the farm as before.

The influential Land Use Policy Group will be launching their vision for the future of the CAP after 2013 in Brussels on March 30th. This will be an important event in the long-term effort to clarify thinking about future policy so that it delivers benefits to the environment and rural communities. [...]

A charming young Estonian woman greeted me at the European Parliament yesterday when I went to give evidence to the Agriculture and Rural Development Committee (of which more in due course). Of broader significance Estonia is probably the only new member state with a clear concept of how the CAP should evolve. This is outlined in an Agra Focus interview with farm minister Helir-Valdor Seeder. [...]

With the health check done and dusted, European agriculture policymakers turn to the bigger questions of the future of the CAP after the current EU financial perspective, which ends in 2013. Ever since the Chirac-Schroeder deal of 2002, which fixed the overall CAP budget and allocation of direct payments for the subsequent eleven years, there has been no serious debate about whether agriculture policy should continue to consume upwards of 50 billion euros a year and whether the current instruments are able to meet current and future challenges. To help shed light on the debate, the Institute for European Environment Policy has this week launched a new website, called CAP2020.
[...]

Later today Stefan Tangermann will step down as Director of the OECD Trade and Agriculture Directorate, a post he has held since 2002. The OECD has a strict ‘retire-at-65′ rule and it may surprise some to learn that the tall and spritely German, invariably sporting one of his trademark bow-ties, has reached such an age. Professor Tangermann has been a colossus among European agriculture policy analysts for at least two decades. Before taking the job at the OECD he was professor of agricultural economics at the University of Göttingen, having been appointed to that position in 1980.
[...]

In the second of today’s podcasts from the European Parliament, Paulo Casaca MEP gives his immediate reaction to a series of votes on the CAP health check that saw many MEPs break ranks from agreed party lines, evidence of the passions that are aroused when the Parliament debates food and farming. He argues that the Parliament has lost its way on the CAP and must come up with a new vision for the future of the policy. Mr Casaca is a Portuguese member of the Socialist Group and represents the Azores. He sits on the Budget Committee and chairs the pro-CAP reform Land Use & Food Policy Intergroup.

Agra Focus has been conducting a series of interviews on EU farm policy and one of the longest and most interesting to date is with Allan Buckwell. He is currently policy director with the (England and Wales) Country and Land Business Association, but is also chair of the policy committee run by the European Landowners Association. He was for many years a respected agricultural economics and policy academic at the now sadly diminished Wye College. Perhaps his most interesting role in policy terms was when he spent a year in DG Agri in 1995-6 and chaired a group which wrote a report on a Common Agricultural and Rural Policy for Europe. [...]

The European Centre for International Political Economy (ECIPE) is a rare creature among Brussels think tanks: first, it advances a strong free trade agenda and second, it does not rely on EU institutions for its funding (its website says that its ‘base funding’ comes from the Free Enterprise Foundation in Sweden). Earlier in the summer EPICE published a briefing paper about the CAP written by Valentin Zahrnt. There’s not a whole lot new in the paper and there is a lot in common with a policy brief I wrote for the Centre for European Reform back in December 2005. The author comes down firmly on the non-trade-distorting, public money for public goods agenda advanced most strongly by Sweden, Denmark and the UK (and more moderately by the Netherlands). [...]

The Dutch have a well-deserved reputation for straight talking and so it is with the Government’s new position paper on the future of the CAP. As the following paragraph shows, there is no ambiguity over where the Netherlands government stands on the great targeting debate:

In the long term – as described in the present document– there will no longer be any question from the Dutch point of view of generic support for agriculture but solely of targeted payments for promoting competitiveness and sustainability and for socially desirable performance. This approach means that a drastic change will be necessary over the next few years. The disappearance of generic income support and market measures will, after all, mean that the instruments that account for 95% of Dutch CAP receipts (some EUR 1.2 billion a year) will disappear. In their place, there will be a new range of instruments that will reward agriculture-related activities – in a transparent and accountable manner – which represent added value for society but are not rewarded by the market, or are not rewarded sufficiently.

Download the report here. Hat tip: Roger Waite at Agra Facts.

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. [...]

France has produced a paper on the future of the CAP which is designed to stimulate discussion at the informal farm council to be held there in the Rhone-Alps region on 21-23 September. The paper is very vague, no doubt deliberately so, and interpreting has to be an exercise in decoding. [...]

We’re used to the arguments that the CAP’s subsidies and tariffs are very bad for many desperately poor farmers in the developing world, with some going as far as to say that the EU has blood on its hands but now comes a piece of medical research which suggests that EU farm subsidies are responsible for more than ten thousand diet-related deaths among European citizens. [...]

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. [...]

American journalist Michael Pollan has written some great books about food and farming, most notably the Omnivore’s Dilemma, which cast a critical eye at so-called Big Organic: the industrial mono-culture organic farmers and growers and big organic chain stores like Whole Foods Market. His new book In Defense of Food offers a manifesto for eating in America to break the vicious cycle of junk food, chronic diet-related diseases and food ignorance. Many of his ideas draw on the notion of ‘food culture’, something that he argues that Americans have lost, and we Europeans (well, maybe not us Brits), still have. This is nothing new of course and Carlo Petrini and the Slow Food movement have been making the case for food culture for many years.

The cultural context of food is often evoked as a justification for the Common Agricultural Policy although others argue that farm subsidies have actually accelerated the decline of European food culture. Michael Pollan gave an interesting talk recently at Google, and you can watch a video of it after the jump. It’s long but very rewarding, so set aside a good chunk of time to listen (and reflect). [...]

The French government has launched a new website as part of the run-up to a conference it will hold on 3 July, at the very beginning of France’s 6-month EU Presidency, to discuss the future of European and global agriculture. Entitled “Qui va nourrir le monde?” (Who will feed the world), the debate is being organised around six questions, divided into two groups. Find out more after the jump… [...]

Before he joined OECD, I would run into agricultural economist Stefan Tangermann from time to time at conferences. I was always impressed by his contributions so it is interesting to read his interview with Agra Focus, one of the latest in an excellent series. In a long interview, he had many interesting points to make and the publication itself is essential reading for those with a serious interest in agriculture and food policy. Below a few of his key themes are picked out. [...]

Fears of unrest are increasing in developing countries as shortages develop of staple foods or prices increase substantially. Governments have cut import tariffs to cope with the problem, but hoarding to take advantage of future price rises has exacerbated the difficulties being encountered. [...]

I have recently been working with others on an edited collection to be brought out from the Centre for Policy Studies in Brussels which re-visits the Fischler reforms of the CAP. The discussions held in relation to the book, which involved some people who knew Fischler’s work well, confirmed my view that he was someone who combined strategic vision with a wily use of tactics and an understanding of which political buttons to push when. Now the former farm supremo has provided a rare interview to Agra Focus. One of the intresting points he makes that two much is made of the difference between the two pillars: ‘They are man-made and we should not make an icon of these structures.’ What is important is that the money goes to the right recipients. [...]

Earlier this week, BBC Radio 4 broadcast Churchill Confidential, a dramatisation of British cabinet meetings chaired by Prime Minister Winston Churchill, records of which have only recently been released into the public domain. In this week’s episode, looking at Churchill’s second term of office (1951-55), we get an overview of the pressing issues of state at that time: the impending conflict with Egypt over the Suez Canal, the development of the British atom bomb, balancing Britain’s relationships with its European neighbours and the United States of America, immigration and race relations, the coronation of Queen Elizabeth II, the devaluation of the pound and, somewhat incongruously… a decision on whether to reduce the meat ration. Why is this relevant to the CAP? Find out after the jump… [...]

The recently leaked Commission Green paper sets the scene for the upcoming health check. What emerges at the moment is a very cautious and minimalist approach, in line with what the Commissioner has been promising for a while. Two things seem striking. The first is the choice to ignore the budget review debate. The second is the lack of courage in confronting the CAP’s failings. [...]

My farmsubsidy.org colleague Brigitte Alfter tells me that the Danish Liberal Party is proposing diverting CAP money to Galileo, the EU’s sat nav (Global Positioning Satellite) system.

If you had €55 billion what would you spend it on?

Update (20 September):

It looks as though the Danish Liberal Party are not the only ones eyeing up the CAP as a source of money for Galileo. Deutsche Welle reports that the Commission is now proposing that unspent CAP funds be used for the project. High commodity prices mean that the Commission has probably been spending less than expected on intervention and export subsidies, so there could well be some spare cash in the CAP pot. I suspect this is just the beginning of claims from other European projects for a slice of CAP largesse as we head towards the EU Budget Review and Health Check.

[...]

Some Danish colleagues told me recently that the Danish Parliament on 30 May last unanimously passed a resolution requiring the Danish government to propose a strategy for how it would actively work for the elimination of EU agricultural support. The strategy should include a timeframe and plan of activities which should take into account the planned CAP Health Check in 2008 and the review of the EU budget in 2009. The strategy should be presented to Parliament before the end of 2007. [...]

In a previous post, I discussed the significance of the current buoyant markets for dairy products for the likely success in pursuing further reform of the EU dairy regime. The insight that world market conditions may influence the trajectory of CAP reform can also be extended to other CAP regimes. Producers have not been as optimistic regarding long-run price trends for agricultural commodities for many years. Food demand prospects appear bright, driven by population growth and rising incomes in many emerging markets. Non-food demand, particularly for biofuels, is a further positive driver. Many believe that, after many false dawns, we really are on the cusp of reversing the long-run decline in real agricultural prices since the Second World War and entering a Malthusian world. But at least one element in this argument does not hold water, according to a recent FAO report looking at the prospects for world agriculture towards 2030/2050. Looking into its crystal ball, FAO foresees a significant decline in the growth of aggregate world consumption (and production) of agricultural commodities, apparently running counter to the conventional wisdom. The growth in consumption we experienced in the 29 years before 2000 will now take 50 years to happen, almost two-thirds as long again. [...]

A number of producer interests would like to revive food security as a major driver of agricultural policy. Organisations like the Commercial Farmers Group (CFG) in the UK, a small grouping of leading producers, argue that new threats are present in the form of population growth, pandemic diseases, climate change, terrorist actions and increased demand for renewable fuels. They want to change the balance between the environmental and food safety concerns that have been driving agricultural policy in recent years and return to more traditional productionist priorities. [...]

Fellow blogger Wyn Grant presented a paper in Paris last month which presents a wide-ranging overview of the changes in CAP policy instruments since its inception to the present day. His basic thesis is that over time the instruments have changed much more than the objectives and that this does reflect a shift in the content of the CAP and its ultimate goals. He concludes that it is changes in CAP policy which have led to changes in policy instruments, although he does cite some examples where the introduction of new instruments, possibly by creating obvious anomalies, can spark off wider policy debates (trading SFP entitlements, voluntary modulation). [...]

A report by the Environment, Food and Rural Affairs select committee of the UK Parliament has called for the EU’s Common Agricultural Policy to be replaced by a new “Rural Policy for the EU”. While the committee of MPs, whose job is to shadow the work of the Department of Environment, Food and Rural Affairs (DEFRA), described the objectives of the CAP as ‘an anachronism’, it reserved its strongest criticism for the UK government itself, which is described as naive and impatient. [...]

It sounds like a Maoist slogan, but farm commissioner Mariann Fischer Boel set out a ‘one vision, two steps’ plan for the reform of the CAP at the recent Agra Europe conference in London. As she has made clear before, the forthcoming Health Check which will address the period up until 2013 is seen largely as a tidying up exercise rather than an opportunity for further fundamental reform. The Commission is currently preparing a Green Paper on the Health Check but this is not expected to be ready until after the summer. [...]

As the European Union gears up for the CAP Health Check in 2008, the United States is already deep in debate over the Farm Bill, which is due for renewal this year. Just as the CAP sets Europe’s farm policies, the Farm Bill (each one lasting for 5 years) defines agriculture policy for the US. And just like the CAP, the Farm Bill is hostage to the narrow producer interests that benefit directly from the policy: big, industrial agribusiness and farmers who monoculture the five big subsidized crops: corn, soya beans, wheat, rice and sugar. ‘Outsiders’ such as consumers, taxpayers, conservationists and those speaking up for farmers in poor developing countries rarely get much of a look in. [...]

The chief economist of the CLA, Allan Buckwell, has been an academic and has worked for the Commission as well as for the landowners’ organisation, so what he has to say on the future of the CAP is worth listening to. [...]

Speaking at the annual conference of the National Farmers’ Union, EU Agriculture Commissioner Mariann Fischer Boel set out her priorities for next year’s CAP ‘health check’. She described her approach as ‘one vision, two steps’, the first step being the health check and the second step being the EU budget review scheduled for 2008/09. It will be very interesting to see how successful she will be in keeping these two steps separate, as the sheer size of the CAP in relation to the rest of the EU budget (in 2005 it was a shade under 50%) makes it impossible to have any meaningful budget discussions without addressing the future of the CAP. [...]