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.

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.

The proposal, which comes from BirdLife International, the European Environmental Bureau, the European Forum on Nature Conservation and Pastoralism, the International Federation of Organic Agriculture Movements and WWF, begins with a fierce critique of the current CAP. It is argued that most of the €55 billion spent by the EU on the CAP “still goes to a very small number of large or resource intensive farms, and all too often to those engaged in unsustainable practices.” The leaps in agricultural productivity in the EU over the past 50 years have

“been based primarily on unsustainable use of natural resources and has brought significant negative environmental effects.”

Specifically, the proposal refers to over-exploitation of water, over-reliance on fossil fuels inputs, soil erosion and depletion of soil fertility, loss of biodiversity, decline in the character of landscape, pollution of rivers and seas and increased pesticide residues in foods. Climate change means this model of intensive agriculture will become ever less sustainable than it already is. Meanwhile, European farming has shed much of its workforce and many of Europe’s remote rural areas are in apparently terminal social, environmental and economic decline.

What is proposed is a new set of objectives for the CAP to replace those set out in the founding treaties and which – quite unbelievably – are transposed word-for-word into the new Lisbon Treaty. The new objectives, it is argued, should be as follows:

• To create the environmental conditions to sustain long-term agricultural production through the protection of ecosystems and their services (soil, air and water) and the sustainable use of natural resources;
• To accelerate the transition toward resource-efficient farming that is less dependent on fossil inputs and more resilient in the face of climate change and other external pressures;
• To promote conditions for the production of safe, healthy and high quality food;
• To maintain and enhance (wild) farmland biodiversity by halting and reversing declines;
• To maintain (domesticated) agricultural biodiversity ;
• To contribute to achieving ‘good status’ in European freshwater systems and adjacent coastal waters;
• To contribute to climate change adaptation and mitigation;
• To support the maintenance of landscapes and a rural heritage rich in aesthetic, cultural or historical value;
• To contribute to the rural vitality of areas highly dependent on agriculture and where this is important to support the viability of those farming systems which underpin the delivery of public goods;
• To promote enhanced animal welfare;
• To support sustainable food systems which better connect producers and consumers.

To deliver on these objectives, the CAP must move away from ‘a logic of dependency and compensation’ to ‘a new contract between farmers and society’ in which farmers are rewarded for their role as land managers providing tangible benfits to society. Public money should be tied to the provision of public goods and no public money should be used to support activities which have adverse environmental impacts (the ‘polluter pays’ principal that is already enshrined in the EU Treaty but which in relation to agriculture is more honoured in the breach than in the observance). The proposal is clear that the current system of cross compliance, in which farmers are apparently paid for observing the law, is not acceptable:

“Payments should not, as a general rule, be made to farmers or land managers for respecting this mandatory baseline.”

Not only that, but the proposal argues the mandatory baseline should be raised with the addition of EU laws on water, soil, pesticides and industrial emissions.

Where the proposal starts to get even more radical is when it asserts that that certain farming systems consistently deliver more public goods than others yet these farming systems are not currently well-supported in the current CAP. The proposal identifies organic farming and high natural value (HNV) farming as the farming systems that should be most heavily supported in the new CAP. Conventional farming, it is argued, does not produce public goods to anywhere near the same extent. Where they do, “this is highly dependent on the management decisions taken by the farmer and is often not an inherent product of a conventional farming approach”.

In the context of the CAP, the revolutionary nature of this approach cannot be overstated. Since its inception the CAP has been based around the idea of maximising production by rewarding the most productive, intensive and conventional agriculture. Recent rhetoric about the sustainability of ‘European model of agriculture’ is mostly just that: rhetoric. The dirty secret of European farming is that much of it is among the most intensive in the world. With a large population to feed from a relatively small area of (fairly expensive) land, European farmers choose to apply more chemical fertilizers and pesticides than farmers elsewhere in the world and have to stock their animals more densely. Unsustainable water use is a problem for agriculture the world over, but as the proposal points out, “agriculture accounts for over 60% of total water use in southern EU countries”, much of which is being extracted from underground aquifers far faster than it is be replenished. What BirdLife, WWF and their partners are proposing is a fundamental reorientation of the CAP away from a production-maximising paradigm of agriculture to a sustainability-maximising paradigm.

The proposal argues that the CAP of the past is in part responsible for this unsustainable path and the current CAP does very little to check it, in some cases continuing to reward intensification. It follows that what is required is the complete sweeping away of the current first pillar of the CAP – the market mechanisms, export subsidies and ‘compensatory payments’ for historical cuts to intervention prices that between them amount for the bulk of current CAP expenditure. In their place is proposed five core schemes:

1. Basic Farm Sustainability Scheme. This would be open to all farmers and land managers and would aim to achieve a ‘green transition’ for conventional farming and drive improvements in biodiversity, resource use and landscape character. The payment would be a flat-rate area payment, decoupled from production. The rate would vary by member state or region, within upper and lower limits set at an EU level.

2. High Nature Value System Support Scheme. This would support the maintenance or recovery of farming systems that deliver high levels of public goods but are threatened by marginalisation, abandonment or conversion to intensive farming. Member states would have flexibility to vary the rates of payment according to national priorities.

3. Organic System Support Scheme. This would aim to increase the amount of organic farming in the EU through support for conversion to, and maintenance of, organic farming.

4. Targeted Agri-Environment Schemes. These would be used to address specific problems such as species or habitat loss, soil erosion and salination, water pollution etc. These contracts would be very detailed and targeted.

5. Natura 2000 and Water Framework Directive compensation schemes. These would provide compensation to farmers or land managers subject to specific restrictions arising from these two compulsory EU regulations.

The existing investment grant aids in the CAP’s rural development programmes would be retained but restricted to the provision of public goods and not aimed exclusively at “improving the competitiveness of individual producers”. Investment grants would only be awarded to farms that are already participating in organic, HNV or agri-environment schemes. Farm advisory and agricultural extension services would be provided to address knowledge-gaps among farmers, help them in their ‘green transition’ and assist in the drawing up of land management plans and help with marketing for HNV and organic farms. There would also be separate, non-farm based measures for rural communities threatened by abandonment.

New objectives will require new delivery mechanisms but the proposal makes the case for retaining a common European approach on the grounds that “the EU has the covernance structure to pursue collective action at the required scale”.

While the proposal does defend the idea of a common European agricultural policy, it is neverthless a radical departure from the shared view of European Commission’s DG Agri, the European Parliament’s agriculture committee and most farm ministries and farm unions that basically European farmers are on the right track in terms of sustainability and they just need a substantial, relatively no-strings-attached stream of financial aid to keep them going. What BirdLife, WWF and their partners are saying is that most European farmers are actually on the wrong track and will need to change their ways if they’re going to become sustainability in the future.

Such a radical shift in the paradigm of European farm policy will inevitably result in massive changes to the allocation of the CAP budget at a farm level. Intensive farms producing few public goods would see their support reduced while extensive, HNV and organic farms would get much more. A transitional period is suggested but there is no denying that the politics of ‘robbing Peter to pay Paul’ is toxic. Though not impossible as shown by Michel Barnier who used the CAP ‘health check’ to take money from French barley barons and give it to livestock farmers in upland areas.

The proposal implies a big shift of resources away from supporting conventional farms towards supporting HNV and organic farming. Opponents will inevitably be argued that if the result is that the ‘basic stewardship’ flat-rate scheme (BFSS) is funded at too low level there may well be a large swathe of more commercially-oriented farms that decide not to participate at all and instead to embrace an even more intensive method of production to make up for lost subsidy revenues.

Getting the balance right between achieving suffciently high participation in the BFSS, setting farm-level requirements that represent better value for public money than the current CAP direct payments while delivering a real increase to funding for HNV, organic and agri-environment policies will be a real challenge. If, as is proposed, this balancing act is left to member states, there is a very real risk that the new policy framework will simply be ‘retro-fitted’ onto the existing allocation of subsidies of the currenty CAP, for instance by rebadging SPS/SAPS as the Basic Farm Stewardship Scheme, the existing Less Favoured Area scheme as the HFA scheme and continuing to keep existing organic and agri-environment measures with their relatively low level of funding.

It is to be expected at such an early stage that a proposal such as this should focus on aims, objectives and instruments rather than numbers. Tactically it may be necessary to maintain the coalition that is behind the proposal and to attract more supporters. Sooner or later, however, there will need to be some more detail in the proposal on the allocation of resources between the five core schemes, even if it is just EU guidelines for maximum and minimum payment rates.

The consultation is open and you can read the proposal in full and contribute your own views, over here.

Complaining that the farm ministers “have been plucking off my last feather”, she said that this would be the last time:

“There will be no possibility for any delegation to come and ask for more money now. And I say this as I see some other sectors of agriculture facing some problems.”

I hope some of this largesse will be funded from the 99 million euro in levies against member states that have exceeded their milk quota.

With only a few months left in office, this may well be a promise she’s able to keep, though who’s to say what goodies her successor will wish to serve up while settling into his or her new job. One thing is for certain, the farmers will still be there with their begging bowl. After all, Jackie Cahill, president of the Irish Creamery Milk Suppliers’ Association welcomed Fischer Boel’s latest move as follows:

“It is a totally inadequate response with the income situation we have. It is not going anywhere near solving the crisis.”

No good deed goes unpunished.

I replied that if the concern was food insecurity, then it’s worth remembering that the immediate impact of scarcity is to drive up prices. When prices go up, farmers have a very clear incentive to produce more. That’s how a market works. And we have seen this occur over the past two years. As prices have gone up so have crop plantings. I then explained that since the EU’s farm subsidy programmes are almost entirely de-coupled from production, meaning that farmers get the taxpayer-funded aid regardless of whether they produce anything, the dominant effect is price, not subsidy. Subsidies are an income support policy for farmers, just as they are defined in the EU legislation. They do not have an impact on food production. (I know there are those who would say there is always some production impact from giving money to farmers, in general it’s accepted that decoupled payments have the least production impact possible.)

If we can rely on market prices to stimulate farmers to produce the amount of food to meet the society’s needs, what should be the role of government? My view is that aside from any rural economic development policies which may have an agricultural angle, the state should reserve its interventions to securing the long-term sustainability of the land and the broader ecosystems that are required for productive farming (water, pollinating insects, soil) and a pleasant environment. This means making investments in conservation and in limited cases where it can be shown to provide value for money, paying farmers to follow certain kinds of land management practices. It could also mean toughening regulation to prevent over-exploitation of resources in the short term that might limit the future productivity of the land (e.g. mining water, destroying wildlife habitats).

As the BBC’s own Future of Food documentary series argues, the challenge for agriculture now is nothing compared to what it will be in 50 years time, when the effects of climate change, water depletion and peak oil will be much more acute. Farmers, like any businessmen, think mostly short term, at the outside a 5 to 10 year time horizon. Governments need to take the responsibility to think longer term, safeguarding the productive capacity of farm land for the next half century or century. And that means holding the line against the rise of traditional productivist thinking, old or new.

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 Group comprises representatives from the UK statutory conservation, countryside and environment agencies and aims to advise on policy matters of common concern related to agriculture, woodlands and other rural land uses. It wants to progressively transform the CAP so that it is focused more clearly on rewarding the environmental services arising from land management where the market fails to do so. These rewards should reflect the services provided and the costs incurred. The new policy should in the Group’s view:

• Have a clear role in mitigating and adapting to climate change, addressing water and biodiversity management and ensuring that farming and forestry have the capacity to deliver environmental security and sustainable production in the long term.

• Promote the sustainable use of the natural resources on which all production depends through the use of good practice guidance together with agreed environmental standards, enforced by risk-based regulation which is binding on all land managers.

• Reward the positive management of existing biodiversity, cultural landscapes, carbon and water resources whilst securing improvements in the environmental quality of all rural land.

• Help reduce the environmental footprint of agriculture and forestry, by targeting capital investment on environmentally beneficial technology and infrastructure.

• Integrate sustainable land management with economic and social policy in order to encourage integrated land use that enables rural communities to benefit from the economic potential of their environment.

• Ensure that progress towards environmental, social and economic objectives is monitored, evaluated and regularly reported on.

The group admits that,

‘Transforming the CAP in this way will take time. Any income support retained in the short term should be targeted, with conditions, on those farming systems making the greatest contribution to the management of environmental services for the benefit of society. Research and development should be focused on the challenge of enhancing long-term productivity in ways that reduce environmental impacts and help adapt to climate change.’

The Group states, ‘We see our proposals as providing a sustainable justification for a “new contract” between predominantly urban taxpayers and those who manage rural land.’ It will be interesting to learn more about the proposals when they become available. The principles are good ones, but to an extent the devil is in detail.

There is also the political problem of overcoming the resurgence of support for productionist solutions, the argument being advanced that protecting the environment is a luxury good that can be set aside in a recession. As evidence accumulates about the effects of climate change and their possible acceleration, future agriculture and rural policy must embed measures to mitigate climate change as a key priority.

Estonia’s view is that reform has not gone far enough and believes that we need a significantly reformed CAP. Seeder’s view is that ‘the system of direct aid today is innovative in its form … but in practice it is the factual continuation of the 1992 MacSharry reform where farmers were compensated for the internal market price drop.’ He argues there should be a continuing base payment to farmers to compensate for the EU standards they are obliged to follow.

However, more payments should be targeted. He sees the future in terms of a Common Rural Policy which should be open to entrepreneurs in rural areas, but ’should not be a cartel for the farmers club.’

He argues that price volatility requires a single intervention mechanism that would enable the EU to offset the negative effects of extreme temporary price drops. However, why not deal with this through some kind of insurance mechanism that had EU backing? It would be less market distoring.

According to the blurb the website aims to be,

“a forum to exchange knowledge and ideas, promote research and express qualified opinion on the key issues shaping the reform agenda, such as food security, public goods and climate change… an outlet for vision statements, think-pieces and research, and insightful summaries of the outcomes of relevant workshops, seminars and conferences.

The site already features some useful analyses of national government positions on the future of the CAP, for example Germany, Sweden and Denmark and there’s a neat policy diary of upcoming events which can be easily imported into Outlook, iCal or other calendar applications.

With the health check agreement secured readers may be wondering about the future of capreform.eu. All I can say at this point is ’stay tuned for further announcements’.

CAP2020

He is probably most famous for the ‘bond scheme’ for CAP reform – under which a future stream of entitlements is converted into an attractive lump sum ‘buyout’ – that he devised in 1991 and subsequently elaborated with Professor Alan Swinbank of Reading University. Two weeks ago he gave a presentation at the European Commission’s conference on the future of the EU budget. He presents a succinct summary of why CAP reform is still very much needed, and what direction reform should take. He did not advocate any particular exit strategy from direct payments such as converting subsidies into tradable bonds. Perhaps once he has freed himself of the constraints of being an OECD employee he will advocate his own personal vision on how bring political economy and agricultural economics can be combined to achieve a more rational European farm policy. You can watch the presentation in full below.

Chapeau, Stefan! Enjoy your freedom but please don’t give up on the battle for CAP reform. Europe needs you!