DG AGRI launched its 12-week public consultation on modernising and simplifying the CAP on 2 February last. The publication of the on-line consultation was accompanied by an inception impact assessment to support the preparation of a Commission Communication on modernising and simplifying the CAP which is expected late this year, possibly in November.
According to the Q&A memorandum prepared by DG AGRI which accompanied these documents, the stakeholder consultation is expected to provide opinion-based information. “It is an opportunity to take into account societal demands in the policy discussions on the future of the CAP and adapt it to better integrate the new political priorities in an inclusive and comprehensive manner.” The impact assessment, on the other hand, proceeds on an evidence basis. “It identifies challenges, outlines objectives, and draws up policy options to achieve them. Impacts of these policy options are then assessed, considering economic, social and environmental dimensions.”
These initiatives follow the commitment in the Commission’s Annual Work Programme for 2017 to “take forward and consult widely on simplification and modernisation of the CAP”. The rationale given by Commissioner Hogan for re-opening the CAP regulations so soon after the completion of the 2013 CAP reform highlights two issues: the complexity of the CAP following the co-decision process in that reform which gives rise to a need for simplification to reduce red tape; and changes in the policy environment for EU agriculture – from markets and trade to climate change and environmental challenges – which require a modernisation of the CAP.
Commissioner Hogan has identified the three priorities that he thinks should be addressed in any overhaul of the CAP regulations. These are greater market resilience; more sustainable agricultural production; and progress on generational renewal. The Q&A memorandum is careful to note that this does not rule out the possibility that other concerns will be raised in the public consultation which may feed into and inform any proposals that the Commission will ultimately make. But I will not be surprised if these three issues make up the core of the Commission’s Communication next November.
A mid-term review of the 2013 reform or designing the CAP post-2020?
There remains some ambiguity about the likely scope of the Commission proposal which I have already discussed in this post. Will it be more of a mid-term review of the 2013 CAP reform, tweaking that reform in just a couple of (possibly significant) areas, or will it be a full-blooded review of all aspects of the CAP to redesign it for the years after 2020? I argue in this post that the former option is what this Commissioner will pursue.
There is much to suggest the more cautious and limited objective. The mandate in the Commission Annual Work Programme is hardly a clarion call for reform. The reference in the mandate to taking into account the view of the REFIT Platform also suggests a limited perspective, as the government members of the Platform have emphasised that its mandate is to reduce the regulatory burden of existing policies and not to conduct a fitness check of the CAP. So does the focus on modernising the CAP to maximise its contribution to the Commission’s ten priorities, which are the priorities for the current Commission which holds office until 2019.
Indeed, the Commissioner in talking about the public consultation does not make reference to designing the CAP post-2020. Nor does he use the term ‘reform’ of the CAP, preferring to stick to the term ‘modernisation’ which makes up his mandate. In fact, the only reference to the CAP post-2020 in the package of material presented by DG AGRI is in the Q&A memorandum where the hypothetical question is posed “Will the future CAP post-2020 be one of the five options [included in the impact assessment]?” to which the answer given is No. More specifically, “The options outlined will not necessarily be included in the proposals for future CAP. Other ideas might stem from the wide consultation. It is also possible that some combination of these options could be finally chosen.”
It might be argued that both the public consultation and the proposed impact assessment open the possibility for a more root-and-branch review. In particular, the inception impact assessment proposes to evaluate five wide-ranging options. The description of the options is a little opaque in the inception impact assessment, but my interpretation of them is as follows:
In practice, this implies that there are three future options being evaluated. The option assuming a continuation of the existing CAP is included to give a baseline against which the economic, environmental and social impacts of the other options can be measured. The no CAP policy would not be in line with the Treaty, according to the inception impact assessment, but is included again as a baseline against which to demonstrate the EU value-added of the CAP as well as the economic, social and environmental impact of the absence of an EU-wide policy intervention.
As DG AGRI’s Tassos Haniotis pointed out to a recent meeting on the CAP after 2020 at the Centre for European Policy Studies in Brussels, options 2-5 are distinguished by the relative priority given to economic as opposed to environmental objectives for the CAP. Thus, Option 2 the absence of policy would solely emphasise market-driven economic objectives such as competitiveness. On the other hand, Option 5 (which closely reflects the ideas put forward by President Juncker’s special advisor Karl Falkenberg) puts most emphasis on securing environmental and distributional outcomes regardless of the impact on competitiveness.
Option 3, which envisages the transfer of a significant proportion of Pillar 1 direct payments to Pillar 2 measures focused on innovation, environment and risk management (perhaps moving from the current 75/25 division between Pillars 1 and 2 to a 25/75 division) would target both economic and environmental objectives but would be more strongly oriented towards the latter. Option 4, which implies the least movement from the current CAP, is seen as delivering less for the environment but, by maintaining the basic payment at current levels (depending on the budget available), is assumed to underpin the economic objective of maintaining and encouraging production.
Commissioner Hogan, it seems to me, has already expressed a preference for a variant of Option 4. In his speech to the Farm Europe Event “A New Ambition for European Agriculture” on 7th February 2017 at the European Parliament, he declared:
There is one thing on which I would like to give some reassurance and that is: despite the emphasis on appropriate measures to ensure greater market resilience, I am also determined to maintain basic income support and an effective safety net through a system of direct payments. That continues to be an essential element of the CAP without which the viability of perhaps tens of thousands of farmers would be seriously compromised.
Accepting this as a red line seems to me to rule out all of the Options except Option 4. In addition to concerns about the elimination of direct payments on farm incomes, he may be encouraged to pursue a limited tweaking of the current policy by the constraints of the political timeline. With a Commission legislative proposal expected in the spring of 2018, this leaves at best a 12-month window to progress it through the legislative process before the current Parliamentary term expires. The only way in which that will be possible is by making a narrowly focused proposal (similar to the CAP provisions in the Omnibus Regulation proposal) in the hope that the co-legislators would confine themselves to debating these tweaks.
Potential pitfalls for the Commission strategy
Although Option 4 suggests the least movement from the current structure of the CAP, it does not mean that it will be uncontentious, at least if it were intended to set the framework for the CAP after 2020. Maintaining a significant role for basic payments as well as implementing the spirit of the Cork 2.0 Rural Development Declaration implies a continuation of the two-pillar structure of the CAP into the next Multi-annual Financial Framework (MFF) period.
However, there was much unfinished business around direct payments at the end of the last CAP reform. The countries of Central and Eastern Europe will be pushing for the further equalisation of payments per hectare (‘external convergence’). The Commission would presumably again want the consistent application of the regional system for the basic payment. Will those new Member States that continue to apply the Single Area Payment Scheme (SAPS) finally be required to adopt the entitlement system underpinning the Basic Payment System (BPS)? The further capping of payments will undoubtedly be proposed, even if not to the extent envisaged in Option 5. The ‘active farmer’ debate may not be fully put to bed in the proposed legislative changes in the Omnibus Regulation. Given the Commissioner’s insistence on maintaining basic payments, any of these issues could see the Council and Parliament adopting different positions which would only be resolved through a lengthy trilogue process.
There is another threat to the Commissioner’s apparent strategy. The impact assessment options differ in terms of the relative emphasis on economic and environmental objectives, but all assume a continuation of the current market orientation of the CAP. But there is another potential fault line around which debates will take place in designing the CAP after 2020, namely between continuing the path of market orientation or returning to greater market intervention.
Returning to greater market intervention could mean various things. It could mean adopting a US-style system of counter-cyclical payments which would inevitably have to be product-specific. It could mean greater use of ‘preventative’ supply management as recently seen in the dairy market. It could mean greater flexibility for Member States to use coupled support. It could mean raising safety-net intervention prices closer to current market levels. All of these ideas have been floated by major players in the CAP debate since the last reform.
However, they are not explicitly part of the Commission’s proposed impact assessment and are unlikely to be part of the Commission’s Communication later this year (a possible exception might be to offer to institutionalise voluntary supply management as a concession to the market interventionists as part of a wider risk management toolkit). But that will not necessarily prevent these ideas being proposed in the debate that will follow the Commission’s legislative proposals next spring. Again, significant controversies around these issues could prevent the passage of the Commission’s legislative proposal before the expiry of the current Parliamentary term.
The final threat to the Commissioner’s apparent strategy is that, once again, revisions to the CAP basic acts will be proposed at the same time as the negotiations begin on the next MFF. There is no reason to assume that these negotiations will be any easier than for previous MFFs. The loss of the UK net contribution to the EU budget after Brexit, competing demands on public funds both inside the EU budget (migration, security) as well as outside (defence), together with a diminished sense of solidarity within the Union (between east and west, and between north and south), suggest if anything that agreement on the next MFF might be even more difficult than heretofore. Even following the timetable of the last occasion, assuming that the Commission leaves its MFF proposal until the end of this year, then it would be at best the spring of 2019 and more likely the autumn of 2019 before the new MFF, and thus the budget for the CAP after 2020, would be known.
During the previous CAP reform when the legislative proposals were made by the Commission in October 2011, the Parliament refused to progress its mandate to open negotiations with the Council until it had a good idea of what the CAP budget would be. It was not until early February 2013 that the COMAGRI rapporteurs circulated their draft opinions, while the Council finalised its mandate for the trilogue negotiations in March 2013. It was the extraordinary achievement of the Irish Presidency that there was broad agreement in the informal trilogues between the two legislative branches by June 2013, although it took until September to address the issues on which the European Council had given an opinion and it was not until December 2013 that the four basic acts were approved on first reading.
The Parliament would be likely to adopt the same position on this occasion. Thus, if the MFF agreement in the European Council were delayed even until the Spring of 2019, there would be no opportunity to adopt the Commission proposals within the lifetime of this Parliament.
Speculating on the way forward
It seems to me that there may be just a small window of opportunity to agree changes to the CAP basic acts in this legislative period. This depends on three conditions.
The first is that the Commission restricts the proposals in its Communication in November this year and in its subsequent proposal for legislative changes to the CAP basic acts to some minimal tweaking of the 2013 reform, focused on the Commissioner’s three priorities. This would mean explicitly proposing to roll over all the other provisions of the basic acts until the early years of the next MFF period when they could be the subject of a more wide-ranging debate.
By keeping a narrow focus, the Commission can hope to keep the period between the Communication, the subsequent gathering of public reactions and the legislative proposal relatively brief, allowing it to make its legislative proposal early in 2018. A narrowly-focused set of reform proposals would also facilitate agreement in the informal trilogue process and the passage of the legislation prior to March 2019 when the Parliamentary term comes to an end.
The second condition is that the co-legislators agree to confine their amendments to the specific issues raised in the legislative proposals, and not seek to open up all the other grievances around the distribution of direct payments, rural development issues, common market organisations, etc. This will be hard for some members of the co-legislators to accept, but the Commissioner has a strong card to play. Unless the co-legislators play ball, they are likely to be left with nothing to show for their efforts as the legislative package would almost certainly fall.
The third condition is that the Commission brings forward its MFF proposal for the period after 2020 to, say, September, to give the possibility, at least, for the European Council to reach a decision on the next MFF by the end of 2018. This timeline may be required in any case if the European Council is going to address the budgetary implications of a UK Brexit three months later.
It may be that the immediate budgetary consequences of Brexit may not be as severe as some of us have assumed. The UK may well continue to make unrequited transfers into the EU budget in recognition of its share of the future liabilities of the Union arising from future programme commitments, pensions and so on (by unrequited transfers, I mean transfers that are unrelated to the UK’s future participation in EU programmes such as Horizon 2020 or ERASMUS where it would expect to get back as much as it put in). One estimate by the UK Centre for European Reform puts the UK’s divorce bill at around €60 billion which compares to the UK’s net budget contribution of around €10 billion per annum. If this were indeed the agreed sum and it were paid off over a six-year period, then the impact of Brexit on the EU budget would not show up until 2025.
An early decision by the European Council on the next MFF, together with a narrowly-focused legislative proposal amending the CAP basic acts to address the Commissioner’s three priorities and a vow of abstinence by the co-legislators not to seek the widen the debate, might just allow this legislation to squeeze through in the current Parliamentary term. It would depend on extraordinary luck, or political skill, to align all of these stars and the chances of success, at this point in time, must be deemed to be low.
Whether this simplification and modernisation initiative is successful or not, however, the possibility of any broader CAP reform is going to be postponed until well into the next Parliamentary period. Many of those responding to the public consultation may be disappointed by the outcome.
This post was written by Alan Matthews
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