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10 reasons why the Single Payment Scheme is politically unsustainable (part two)

Last week I posted five reasons why it is hard to justify spending 30 billion euros each year on the Single Payment Scheme. Here are five more reasons.

6. MISSED OPPORTUNITIES: The SPS accounts for one in every four euros that the EU spends. By 2012, the SPS budget will have risen to 40 billion euros a year – and that doesn’t count the remaining 15 billion euros of CAP spending. The opportunity costs are obvious. The EU has ambitions for new policies to tackle climate change, ensure energy security and promote global development and world peace and raise the level of European research and development and economic innovation. Every euro the EU spends on SPS is a euro that cannot be spent elsewhere. A recent Eurobarometer survey found that the public attached less importance to EU spending on agriculture than than spending on: economic growth, employment and social affairs, public health, climate change and environmental protection, energy, scientific research and defence and security.

7. SWINDLING EUROPE’S NEW MEMBER STATES. When it comes to entitlements to SPS, farmers in the member states that joined the EU in 2004 an 2007 were stitched up good and proper. First, their eligibility for SFP was assessed on the basis of yield calculations from the time when their agriculture sectors were at their least productive: during the economic upheavals following the breakup of the Soviet Union. Second, they were introduced on a sliding scale that started at 25% of entitlements of the EU-15 and will only reach parity in 2013. Even then, per hectare payments to farmers in the poorer “new” members states will be a fraction of the handouts to farmers in the richer ‘old’ member states.

8. BAD FOR YOUNG FARMERS: The capitalised value of a future stream of SPS payments drives drive up the cost of entering farming or expanding an existing farm business. Farmers exiting the industry rarely wish to sell land with their SPS entitlements unbundled since SPS cannot be claimed without matching land. So new entrants are forced to ‘buy in’ to the system by acquiring SPS entitlements, adding to their debt load. There can be no logic in a policy that holds back the future of farming in order to provide windfall gains to its past.

9. BREAKS TRADE RULES. When the SPS was proposed in 2003, a major motivation was to make EU’s farm subsidies compatible with its obligations under international trade law. Since 2005, the EU has notified the SPS as a ‘green box’ policy which is exempt from limits because it is ‘non- or minimally trade distorting’. However, economists have shown that the restrictions on what a farmer may and may not plant on SFP-eligible land suggests that it does not pass the green box test. For a more detailed discussion of this, see a recent article by Valentin Zahrnt.

10. NO EUROPEAN VALUE ADDED. According to the European Commmission, EU spending “must be able to offer a return at European level which could not be matched by national or local spending.” There is no reason why the SPS should be a EU-funded program. The EU does not run any other income support programmes such as old age pensions or unemployment benefit. It leaves those responsibilities with national governments. Some argue that the SPS provides a ‘level playing field’ within the single market – but how can this be true when payment rates vary so much from one country to another? If a national government wishes to provide income support to a particular sector of society or a particular part of the economy, that is its choice, as long as such payments comply with EU state aid rules.

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