The contribution of rising food prices to the revival of inflation in the eurozone has attracted the attention of the European Central Bank (ECB) in its latest monthly bulletin for December 2007. Eurostat’s flash estimate of inflation for November 2007 on an annualised basis is 3%, compared to an average growth rate of 1.9% in the first three quarters of 2007. This increase has been driven by recent strong energy and food price increases.… Read the rest
Health Check proposal on flat-rate Single Payment Scheme misunderstood
Many people are under the impression that the Commission’s Health Check Communication proposes that all Member States should move towards a flat rate regional single payment system. There is a widespread view that the Health Check would require those Member States which opted for the historic basis to begin to move towards a regional system between 2009 and 2013.… Read the rest
CAP direct payments poor value for money
The major weakness of the Commission’s CAP Health Check Communication is its failure to spell out a rationale for maintaining the Single Farm Payment after 2013. Yet another report, this time commissioned by the European Parliament’s Committee on Budgetary Control, lambasts the lack of efficient targeting and ensuing excessive cost of the SFP system. Written by Jorge Nunez Ferrer and Eleni Kaditi of the Centre for European Policy Studies in Brussels, and not yet published, the report examines both CAP market and rural development expenditures from the perspective whether EU interventions add value, that is, whether the benefits of these policies outweigh their costs. The report’s authors argue that CAP direct payments are highly inefficient and detrimental in terms of efficiency and value added in the way they are designed. … Read the rest
Limited administrative burden of the Single Farm Payment
Economists have long been interested in the costs associated with policies transferring income support to farmers. These costs include not only the resource costs associated with distorting production and consumption choices away from the market optimum (assuming that market prices fully reflect the social value placed on resources and outputs), but also the transactions costs of administering and monitoring the policy, indirect costs associated with distortions in other markets (for example, if tax revenue has to be raised to pay for direct payments or export subsidies), as well as rent-seeking costs.… Read the rest
Specious arguments against limiting payments to largest farms
Initial media reaction to the Commission’s Health Check proposals has been predictable, with most papers picking up as the lead story the Commission’s proposal to apply a tapering reduction to direct payments to larger farms. The Financial Times story was headlined “Communists and royalty fight farm subsidy cuts.” Much was made of the fact that the Commission’s illustrative proposals would reduce the payments received by the Queen of England, who apparently received £465,000 (€650,000) in 2005, by over £140,000 (€192,000). British and German officials were quoted as saying they would oppose these reductions as they were unworkable and undesirable.… Read the rest
Why agricultural policy reform is so difficult
Over on the excellent VoxEU site, Thomas Hertel, Roman Keeney and Alan Winters try to answer the question why agricultural policy is so difficult to reform, as illustrated by the way in which difficulties in getting agreement on reduced agricultural support and protection has been one of the factors preventing progress in the Doha Round. They take issue with one justification for preserving rich countries’ agricultural protection that it helps poor farmers in the North while the benefits of liberalisation would go only to rich farmers in the South. … Read the rest
Options for milk quota reform
How to manage the transition to the phasing out of milk quotas is one of the items on the CAP Health Check agenda. A recent study from the FAPRI-Ireland team based in the Rural Economy Research Centre, Teagasc in Ireland has examined the impacts of two alternative transition paths to phasing out milk quotas by their expected date of elimination in 2014/15. … Read the rest
More on who benefits from farm subsidies
Jack Thurston reviews some recent academic studies, including a recent paper by Stefan Kilian and Klaus Salhofer from the Technische Universität Munich, which make the point that much of the benefit of agricultural support policies does not end up in the hands of farmers who are its intended beneficiaries, but rather benefits landowners. However, my reading of the Kilian/Salhofer paper is that we need to be careful in applying this conclusion to the EU’s Single Farm Payment.
Kilian and Salhofer highlight the requirement in the EU Single Payment Scheme that a farmer must possess an entitlement in order to qualify for the payment. It turns out that this creation of a new ‘factor of production’ can modify significantly the conventional conclusion that landowners benefit from agricultural support.… Read the rest
More on capping direct payments
Much initial reaction to the Commission’s leaked Health Check proposals has focused on its renewed attempt to introduce a cap on the Single Farm Payment amount which an individual farmer can receive. In fact, the proposal does not amount to a cap in the sense of an absolute ceiling, but takes of the form of a tapered payment Farmers receiving between €100,000 and €200,000 would face a 10% cut, those receiving between €200,000 and €300,000, a 25% cut and those receiving over €300,000, a 45% cut. Jack Thurston’s post yesterday highlights the limited impact the measure will have.
It might be useful to put the Commission’s proposal in some historical perspective. Capping was part of the Commission’s initial reform proposals in each of the past three CAP reforms – the 1992 MacSharry reform, the 1999 Agenda 2000 reform and the 2003 Mid-Term Review. In this post I review the evolution of this concept and corroborate the implications of the Commission’s Health Check proposals.… Read the rest
Commission’s CAP Health Check proposals leaked
The Commission’s draft proposals for the CAP Health Check due to be officially released in November have now been widely leaked in the agricultural press (see the UK Farmers Guardian for one summary).
Much initial reaction has focused on the Commission’s renewed attempt to introduce a cap on the Single Farm Payment amount which an individual farmer can receive. Farmers receiving between €100,000 and €200,000 would face a 10% cut, between €200,000 and €300,000, a 25% cut and over €300,000, a 45% cut.
In the longer run, however, the proposals to move towards a standardised uniform, area-based system for calculating Single Payments from 2009, to eliminate partial coupling of arable payments, as well as to increase the compulsory modulation percentage from 5 to 13% by 2013 are likely to have greater significance for farmers and the direct payments system. Over the next few weeks, we plan to provide a more detailed analysis of these proposals on capreform.eu.… Read the rest