Impact of CAP subsidies on productivity

April 1, 2013

Impact of CAP subsidies on productivity

I recently had an exchange on Twitter with Martin Crowe, an Irish dairy farmer and agri-consultant, over the apparent stagnation in Irish agricultural output over the past 20 years (follow on @xAlan_Matthews and @martincrowe). I attributed this, in part, to the role that direct payments play in Irish farm incomes. I argued that “If 70% of your income is coming as a cheque in post there is less incentive to innovate to grow the remaining 30%” (direct payments make up around 70% of Irish farm income in an average year). Martin tweeted back that the “70% gives the security and confidence to try and improve the 30%”.
At issue here is the impact of CAP direct payments on farm productivity. As the Twitter exchange indicates, there are potentially both positive and negative effects.
How direct payments might affect productivity

In the agricultural economics literature, the positive effects rely on credit constraints and assumptions about risk behaviour in agriculture.… Read the rest

March 27, 2013

How MEPs voted on CAP reform

The website VoteWatch Europe monitors the voting of MEPs on each resolution and piece of legislation. It published the following commentary on the CAP reform voting earlier this month (thanks to Xavier Pavard @xpavard on Twitter for drawing attention to this source) which I reproduce here.
(Note: Right click on the images below and select Show picture to get clearer view of the graphics)

Centre-right wins battle over CAP reform; net contributor country MEPs outvoted

MEPs voted on a package of four legislative proposals that make up the reform of the Common Agricultural Policy (CAP). The subject was hotly debated, as CAP currently accounts for close to 40% of the EU budget. CAP is to be reformed with effect from 1 January 2014. To ensure better targeting of aid, the proposal gives Member States the responsibility for defining what constitutes an “active farmer”.
Other provisions are that no Member State’s farmers should receive less than 65% of the EU average, that young farmers should get a 25% top-up payment for a maximum of 100 ha and that direct payments to any one farm should be capped at €300,000.

… Read the rest

March 25, 2013

Evolution of the direct payments regulation

In January I prepared a spreadsheet setting out the amendments to the Commission’s proposed direct payments regulation which took account of the COMAGRI rapporteur’s amendments May 2012, the Council’s position as summarised in the Cyprus Presidency document December 2012 and the COMAGRI compromise amendments Jan 2013.
Some readers found this useful so I have now updated the spreadsheet to take account of the COMAGRI proposal for a negotiating mandate in February 2013 (that is, after COMAGRI voted on the compromise and other amendments), the mandate following the European Parliament plenary vote in March 2013, and the successive versions of the regulation prepared by the Irish Presidency for the March 2013 Agricultural Council meeting. The updated spreadsheet can be downloaded here (use the download arrow in the top left corner when the Google Drive document opens to download the spreadsheet to your computer).
The Irish Presidency prepared three versions of Council’s general approach on the direct payments regulation.… Read the rest

March 4, 2013December 26, 2019

Implications of the new redistributive payment

Ever since direct payments were introduced into the CAP, their unequal distribution has attracted unfavourable attention. The Commission’s 1991 paper The Development and Future of the CAP criticised the distribution of price support, noting that “80% of the support provided by FEOGA is devoted to 20% of farms which account also for the greater part of the land used in agriculture”. Yet the proportions remain exactly the same in both the EU-15 and EU-12 today, according to the Commission’s latest figures for the claim year 2009 (financial year 2010) (see diagram).

Even for those who argue that the specific nature of farming justifies a permanent system of direct payments support, the unequal distribution of support is hard to justify. The Commission has regularly made proposals to reduce payments to larger farms through either progressive modulation and/or capping. But these proposals equally regularly were either watered down or rejected by the member states.… Read the rest

February 27, 2013

Promoting innovation through the EIP Agricultural Productivity and Sustainability

Last week I attended a meeting of the High Level Steering Board of the European Innovation Partnership for Agricultural Productivity and Sustainability (EIP-A) representing the European Association for Agricultural Economists. The meeting was jointly organised by Dacian Ciolos, Commissioner for Agriculture and Rural Development, and Maire Geoghegan-Quinn, Commissioner for Research and Innovation.
It brought together 42 people representing member states, the farm and food sectors, NGOs, representatives from existing Joint Programming Initiatives in the food and agriculture area as well as scientific associations and the university sector. The purpose of the meeting was to provide input for drawing up the EIP Strategic Implementation Plan (SIP) and the agenda was organised around four questions relating to priorities, bottlenecks, mobilising farmers and delivery mechanisms and funding.
Given the diversity of interests around the table, the discussion highlighted inevitable tensions around (a) the concept of innovation and how to define it (b) the balance between agricultural and food innovation particularly in the context of the EU’s bioeconomy strategy, and (c) within agriculture, the emphasis to be given to increasing production with less external inputs compared to more agroecological approaches placing more emphasis on sustainability and less on production.… Read the rest

February 26, 2013

Implications of the European Council MFF agreement for the agricultural environment

This is a shortened version of a post which was first written for the Institute for International and European Affairs EnvironmentNexus blog

From the perspective of the agricultural environment, there are three elements in the European Council conclusions on the EU’s Multi-annual Financial Framework on 7-8 February which should be noted.
The first element is the general commitment that climate action objectives will represent at least 20% of EU spending in the period 2014-2020 and should be reflected in the appropriate instruments to ensure that they contribute to strengthening energy security and building a low-carbon, resource efficient and climate resilient economy.
As agricultural spending will continue to account for 36% of total MFF spending during this period, it will also have to contribute to this objective. This will require a classification of what spending contributes to climate action objectives. One might speculate, for example, that the Commission is likely to consider the proposed green payment in Pillar 1 as a climate action instrument, in addition to some spending under the Pillar 2 rural development budget.… Read the rest

February 6, 2013

Will the MFF be agreed this week?

Heads of State and Government meet Thursday and Friday 7 and 8 February in the first European Council meeting of 2013. A second attempt to reach agreement on a Multi-annual Financing Framework (MFF) for the 2014-2020 period is on the agenda. Prime Ministers and European Ministers have been criss-crossing Europe for the past few weeks to drum up understanding and support for their various national positions, with Merkel and Hollande meeting in Paris today Wednesday on the day before the summit begins.
Herman van Rompuy, the Council President, is playing his cards very close to his chest. Unlike prior to the earlier failed attempt to reach agreement in November last year, a third draft of the Council conclusions (HvR-III) will not be formally circulated before the meeting (see this post for commentary on HvR-I and this post for commentary on HvR-II).
The talks at the European Council of 22-23 November were suspended and will now pick up from that point.… Read the rest

February 3, 2013

The MFF numbers – where we stand

Later this week (7-8 February), the European Council will meet for a second time to try to agree the parameters for the EU’s Multi-annual Financial Framework (MFF) for the 2014-2020 period. The prospects for success remain uncertain; tomorrow I will review the main outstanding issues and the likely flashpoints when the Heads of State and Government meet.
The purpose of this post is to present the numbers as published in successive drafts of the MFF since the Commission’s original proposal in June 2011 and a comparison with the numbers in the 2007-2013 MFF. This provides the context to evaluate the blueprint which European Council President Herman van Rompuy will put before the leaders and any potential agreement.
The main steps since the original June 2011 proposal have been the Commission’s amended proposal in July 2012 to take account of new legislative commitments entered into after June 2011, the proposed accession of Croatia in July 2013, and revised national and regional GNI figures which imply a recalculation of cohesion fund entitlements especially for those member states subject to capping; the Cyprus Presidency’s draft negotiating box in October 2012 which presented revised figures for the first time; and the two proposals for draft European Council conclusions made by Herman van Rompuy (HvR-I and Hvr-II) before and during the last European Council meeting in November 2012.… Read the rest

January 30, 2013

The development interest in the CAP reform debate

Olivier De Schutter, the UN Special Rapporteur on the Right to Food, called last week for MEPs to take into account the impact on developing countries when voting on amendments to the draft CAP regulations post-2013 (see also here). Among other issues, he called on MEPs to support the views of the European Parliament’s Development Committee, which voted unanimously in favour of a mechanism to monitor the CAP’s development impacts (look for Amendment 4 inserting a new Article 110(a)). In the voting last week, COMAGRI MEPs declined to do this.
De Schutter had previously issued a report with some controversial recommendations on how this round of CAP reform could help to realise the right to food in developing countries. Developing country interests have played a role in the debate around the CAP2020 (notably being used to support a delay in the elimination of sugar quotas beyond 2015 and also more generally as part of the argument that the EU needs to produce more food in order to contribute to global food security – there is a good rebuttal of this argument in this study).… Read the rest

January 20, 2013

Following the negotiations on the Direct Payments Regulation

COMAGRI will vote on compromise amendments to the Commission’s proposals for the four main CAP regulations this week. To understand the dynamics of the legislative process, it is helpful to be able to see the positions of the main institutions side-by-side. I have constructed a four-column spreadsheet table showing, article by article, the positions of the main actors as we know them to date for the direct payments regulation (download the file to your computer by clicking File, Download in the upper left of the Google Drive document when the link opens). The four columns show, for each article:

I have only had the time to construct this table for the direct payments regulation so far. There may be readers who have already done this exercise for the other regulations and, if you are prepared to share the table, I would be happy to post it on this site with attribution.… Read the rest