The political feasibility of CAP redistribution

A novel feature of the current round of CAP reform negotiations is that it explicitly aims to redistribute budget resources between member states. One of the reasons for the success of the 2003 Fischler Mid-Term Review and the 2008 Fischer Boel Health Check was that they left the pre-existing distribution of payments across member states more or less intact.

The demand from the new member states for greater convergence in the value of the direct payment per entitlement (or eligible hectare) in the current CAP negotiations means that redistribution is now firmly on the reform agenda. But it also makes reaching agreement much more difficult.

This is illustrated in a paper by Kyosti Arovuori from the Finnish Pellervo Economic Research PTT institute and and Jyrki Niemi from MTT Agrifood Research Finland at the Annual IFAMA World Symposium in Frankfurt last June. They examine a set of potential redistribution criteria identified in the Commission’s November 2010 Communication for their ‘political feasibility’, and conclude that none would pass the voting procedures of the European Council.

Conclusions of the Finnish research

The basic assumption of the Finnish paper is that countries vote according to whether they are winners or losers in terms of their ‘national envelopes’ under Pillar 1 of the CAP. Given that payments into the EU budget are determined by an objective formula, this is equivalent to saying that member states’ voting behaviour is determined by how the proposal affects their ‘net balances’ with respect to the EU CAP budget.

Although a simplistic assumption, it is a plausible one and has a good amount of empirical support. The eurozone economic crisis and problems with fiscal deficits generally in the EU have diminished the likelihood of ‘altruistic’ behaviour such as arguably influenced the German position in budget negotiations in the past.

The researchers note that the policy options they examine would increase significantly the negative net balances in all three countries with the highest national contributions already under the current CAP (DE, FR, IT) while increasing further the net receipts of those countries which are already big net recipients from the EU budget (RO, PO, HU).

Whether these net recipients could further improve their relative position depends on whether they can put together sufficient votes to win a qualified majority in the Council of Ministers.

What the Finnish researchers do is to count the votes of countries which are winners and of those that are losers under each redistribution scenario and compare the outcome with the minimum number of votes required to pass a proposal (255 votes out of 345 under the current weighted majority voting rule plus a majority of (at least 14) countries. In principle, a member state can also ask to check that a qualified majority represents states with at least 62% of the population, but this possibility has never been used given that a qualified majority requires 74% of the weighted votes in the Council.

They conclude that any policy with significant redistributive effects across the member states is not likely to gain a qualified majority in the Council.

Caveats

There are a number of possible extensions to this approach. One is that it neglects the possibility that Pillar 1 and Pillar 2 national envelopes might be negotiated simultaneously thus giving an extra degree of freedom in the negotiations (a country losing under Pillar 1 might be ‘compensated’ through the allocation rule selected for Pillar 2, and vice versa). It appears that the MTT group has made similar simulations using both Pillars, but that paper is published in Finnish.

Probably more important, the analysis ignores the impact of the Treaty of Lisbon which has given the European Parliament co-decision power in respect of agricultural policy. While the Council of Ministers has the upper hand in deciding on the overall budgets for Pillar 1 and Pillar 2 (these are set out in the Multiannual Financial Framework which the Parliament can only vote up or down but cannot amend), it has co-equal power in agreeing the direct payments regulation which will set out the national ceilings by member state.

It is still unclear how the Parliament will use its new power, but one might assume that it will be less influenced by the ‘net balances’ issue than the Council of Ministers. While Commissioner Ciolos last week in Dublin insisted that CAP reform could not be agreed until the budget negotiations were concluded, an equally cogent case can be made that the linkage runs in the other direction. It is hard to see member states signing off on a budget deal without knowing how they will be affected by a CAP reform, given the central role that the CAP will continue to play in the determination of overall budget net balances in the coming MFF period.

How does the current Commission proposal fare?

The Finnish paper was written before the publication of the Commission’s proposals for the next MFF and before its legislative proposal for CAP reform was released in October 2011. These proposals suggest a pragmatic redistribution (called the “MFF distribution key”) that provides that member states that currently have direct payments below the level of 90% of the average will close 1/3 of the gap between their current level and the 90% level, to be funded by reducing the payments to member states with above-average payments.

The impact of this proposal is shown graphically in the Figure here.

Figure 1. Redistribution of Pillar 1 using the MFF keyMFF CAP redistribution key

An obvious question is how this proposal would fare in the Council of Ministers, assuming that countries vote in the way that the Finnish researchers assume they will. The relevant tabulation is set out in Table 1. The answer is, at first sight, not very well. With only 162 votes, the proposal would come nowhere near gathering the required qualified majority.

Table 1. Winners and losers under the MFF distribution keyTable of winners and losers from CAP MFF redistribution key
Sources: Based on Commission estimate of direct payment envelopes in 2017 under existing legislation and national ceilings in the proposed direct payments regulation for 2017.

Introducing some flexibility

However, the criterion used by the Finnish researchers is overly strict. If a country is just one euro worse off under the MFF proposal, then it is classed as a loser and assumed to vote against the proposal. (Note that, to control for differences in the overall size of the future Pillar 1 budget, the researchers in fact count as winners those countries whose share of Pillar 1 receipts increases and vice versa).

This criterion seems unduly mechanical. Most countries would be happy to end up with more or less their previous share, even if slightly reduced. Alternatively, we can interpret the additional flexibility as a consequence of co-decision with the European Parliament.

Figure 1 above shows that, in fact, for many countries, the difference between their current receipts and receipts under the MFF proposal is very minor (the Commission diagram compares receipts under the MFF proposal for the overall Pillar 1 envelope with actual receipts under the current Pillar 1 allocation which, in total, is slightly higher, so it even exaggerates the differences in share terms).

Thus Column 4 in Table 1 relaxes the constraint to allow for an arbitrary 5% franchise. That is, a country would be prepared to vote in favour of a Commission proposal provided it did not reduce its share by more than 5% below its existing share. This alters the picture dramatically, and now the Commission proposal has a comfortable qualified majority.

A new parlour game?

The Commission has been criticised, notably by disappointed new member states (most recently in the Joint Declaration by the Ministers for Agriculture and leaders of agricultural organisations in the Baltic States at the Berlin Green Week this January), for the lack of ambition in its convergence proposal. However, it may well have been aware of the arithmetic of the qualified majority voting rule and put forward a proposal which it felt was politically feasible.

Could the Commission have proposed more? Readers could make their own calculations of politically feasible redistributions – a new parlour game for these cold winter evenings.

This post was written by Alan Matthews.

Picture on home page used by permission of the European Parliament under a Creative Commons Licence.

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One Response to “The political feasibility of CAP redistribution”

  1. Roman Izdebski →
    February 10, 2012 at 16:13 #

    I appreciate some political and academic games but…The member states’ voting behaviour called “pragmatic approach” is politically more or less acceptable but it is in contradiction with the Treaties. It is a paradox that many participants of discussions on the CAP after 2013, including the European Union (EC), underline strategic role of agricultural sector in the sustainable development of the European Union (EU) but at the same time ignore connection of this sector development with the fundamental rules and strategic objectives of the EU. The fundamental rule of the EU existing is the rule of law. So, one can expect that reform of direct payments (DP) – distribution of support for rural development is not proposed – should respected provisions included in the Lisbon Treaty. To verify this expectation let’ remember some of the Lisbon Treaty provisions and compare to the CAP results and the EC proposals for the direct payment distribution after 2013.
    Fundamental values and aims of the EU are included in TEU articles: Article 2 (inter alia the rule of law), Art. 3 paragraph 3(inter alia economic, social, and territorial cohesion and solidarity among Member States), Art. 4 paragraph 2 (The Union shall respect the equality of Member States before the Treaties); articles of TFEU: Art. 11 (Environmental protection), Art. 18 (…any discrimination on grounds of nationality), Art. 40 par. 2 (any discrimination between producers within the Union), Art. 168 par. 1 (human health protection shall be ensured).
    Let’s compare some results of the CAP implementation with the Lisbon Treaty articles in the context of direct payments distribution.
    1. Direct payment (main instrument of the EU agricultural support) is directed to very narrow group what causes discrimination of family farms in spite they constitute at least 90 % of all EU farms . On average family farm receive around 4 000 € of direct payments per year and remain farms 100.000 €!(let’s compare to art. 3 TEU).
    2. Discrimination of New Member States which receive much less direct payments per eligible ha than richer old Member States (art. 3 and 4 TEU together with art.18 and 40 TFEU); in 2005-2009 average ha in the EU-15 “received” 953 € more than respective ha in the EU-10 .
    3. Concentration of agricultural production in some regions caused by development of industrial agriculture and leaving of the production in others; soil degradation together with loss of biodiversity – annual costs of soil degradation are estimated at least 38 billion € and annual cost of biodiversity loss in the EU 50 billion € or 545 billion € in 2000-2010 which is equal of 1% of the EU GDP . (art. 3 TEU, art 11 TFEU).
    4. Health risks for the EU consumers: inter alia presence of bacteria resistant to antibiotics in human bodies which are transferred from animals breeding in intensive agriculture, toxic antibiotics in food originated from this type of agriculture , contamination of drinking water by intensive agriculture , presence of GMO in the EU food and environment, ineffective beef import control from Brazil, annual curing cost of overweight and obesity – 150 billion € (art. 168 TFEU)
    It seems that only these results of the CAP implementation have clearly indicated necessity of urgent and radical reform of the EU agriculture policy. Unfortunately, the latest EC proposals have only good marketing packaging. Detailed analysis indicates that the EC proposals related to more equitable distributions within Member States seem nothing more than cosmetics. They will still benefit large farmers and the agro-industry and preserve strong inequalities among farmers. The money saved from capping the largest farms (relatively very low ) will not be redistributed to the family farms. Support to small farms will be too low to enable their development. DP distributions after 2013 show huge differences in DP per eligible ha between Member States – from 141 €/ha in Latvia to 703 €/ha in Malta . Majority of poor New Member States (NMS) receive DP/ha below average of the EU-27. If we assume that DP have income function , that all member states are obliged to meet the EU law requirements (cross-compliance, DP “greenings” etc) and we treat sustainable development of the EU and its agriculture seriously we should expect fair distribution of direct payments. Inter alia it means that higher DP should be directed to less rich Member States. But such relation is not observed in the EC proposals (there are some exceptions). Some stakeholders argue that DP rates should be higher in the states with higher GDP per inhabitant due to higher cost of agricultural production (very doubtful) and necessity to keep level of living of farmers in relation to persons hired in whole economy . Comparison between level of DP and Gross Domestic Product (GDP) do not confirmed such arguments – there are states with GDP per inhabitant above EU-27 average which shall receive DP below EU-27 average (Austria, Sweden, United Kingdom or Finland) and states with GDP per inhabitant above EU-27 average which shall receive DP above EU-27 average (Luxembourg, Nederland, Denmark or Germany).
    Conclusions.
    1. The latest EC proposals for direct payment level and their distribution will actually preserve status quo because the proposals are not based on the Treaty of Lisbon provisions and declared objective criteria but on “pragmatic approach” expressed in assumption “limitations of gains and losses of Member States in comparison to present state of art”.
    2. It is a paradox that the European Commission as a guard of the Treaty does not ensure the application of the Treaties in the direct payment reform.
    3. If decision makers do not respect obligatory law how they can expect support of the EU citizens in building sustainable and safe the EU future?
    Roman Izdebski