The great targeting debate

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.

The modernisers favour a ‘programming approach’ that ties public money to definable public benefits and introduces quasi-contractual relationships between the state as purchaser and the farmer as service provider. In most cases the services to be provided are ‘environmental services’: preservation of biodiversity and wildlife habitats, action on water pollution, soil erosion and so on. This is the underlying ethos of EU rural development policy, although there are significant elements of the RDP that don’t quite meet the standard, the most obvious being Less Favoured Area payments. The modernisers see the old market intervention measures and direct payments (the single farm payment) as poorly targeted, both in terms of need (big, competitive farms get the most subsidy) and value for money (the link between subsidy payments and public goods provisions is, at best, weak).

The consolidators see things rather differently. They perceive that across the board, EU farmers lack competitiveness on world markets, in part because of the burden of meeting higher regulatory standards and having higher costs for land, labour and farm inputs. For this reason, the EU must step in and provide a blanket form of support to almost all farmers, approximately on the basis of their output. This ‘market correction’ will allow farmers in the EU to compete on a ‘level playing field’ internationally. For the support to be WTO-compliant it must be decoupled from production. This change was the most important part of the Fischler reforms agreed in 2003 and implemented with to varying degrees by member states. The fear expressed by consolidators, which is articulated in great length in the Scenar 2020 report, is that without a big cash injection, most European farmers would go out of business.

The limited ambition of the CAP Health Check proposals represent a victory for the consolidators, although the contours of the debate are visible in discussion of key health check elements such as the level of modulation, the introduction of payment limits and the potential of Article 68 measures which, depending on how they are drafted, could follow a programming-approach or resemble an old-style production subsidy.

It is unclear how long-lasting the consolidators’ victory will be. Those around Agriculture Commissioner Mariann Fischer Boel echo her line of ‘one vision, two steps’ with varying degrees of radicalism, inferring quite different notions of the shape of the CAP beyond 2013. For some senior members of her Cabinet, the single farm payment is just a transitory arrangement, as it had originally been intended when direct payments were first introduced in the 1990s. Broadly speaking there are a two alternative visions of the future: (1) a flat-rate per hectare payment for all European farmers or (2) a massive expansion of the rural development budget under the programming approach. Both involve major redistributions which present significant political challenges.

Some fear that without the current SFP (or its flat-rate successor) as a one-size-fits-all entitlement policy run from Brussels, DG Agri would likely face budget cuts, loss of prestige within the Commission and a diminished power to shape land management practices across the continent. They also fear that a programming approach implies greater flexibility for member state discretion, a CAP à la carte, partial renationalisation and the undermining of the single market. Some federalists of the old school are consolidators simply because the CAP is the policy area that has seen the highest level of European integration. For them, criticism of the CAP is critism of European project.

These then are the battle lines of the coming debate over the future the CAP in the EU budget review. What we see now is the phony war, the real action will wait until after the next European Parliament elections and the appointment of a new Commission with – it is widely assumed – a new Agriculture Commissioner.

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