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Commission leaked draft fails to advance reform debate

The draft Commission communication on the CAP towards 2020 is an underwhelming document, not just for those seeking to push an ambitious reform agenda but also for those seeking a roadmap to address issues that the Commissioner himself has identified as up for discussion. As Mairead McGuinness, the Irish MEP, commented, it lacks both detail and substance, and is devoid of both figures and analysis.

Nonetheless, it does contain some clues on what DG Agri might like to see in the final package, however cautiously they are expressed. The language used does nudge the debate on the future CAP in slightly different directions to the current CAP. The document is now in inter-services consultation, and the comments of other Commission DGs such as Budget, Finance, Trade and Environment have yet to be incorporated. Assuming that these DGs have been kept in the loop as the document was drafted, their comments are unlikely to modify it in any major way before its publication due next month. However, as argued later, there are some surprising omissions particularly with respect to how the budget for Pillar 1 payments might be allocated between Member States, so further additions to the document cannot be ruled out.

Objectives for the new CAP

During the public debate, in response to questions on why a Common Agricultural Policy might be needed, seven major challenges were identified, according to the Commissioner. These are food security, the competitiveness of our agriculture, globalisation, environmental challenge, territorial balance, diversity and the simplicity of the CAP.

These are boiled down to three challenges in the draft document: ensuring food security, addressing environmental challenges and maintaining territorial balance. From these three challenges are derived three objectives, each with three sub-objectives:

• Viable food production
• Sustainable management of natural resources
• Balanced territorial development

So far, so good. It would be hard to find anyone who would disagree with these objectives. But probing deeper uncovers plenty of grounds for argument. The food security challenge is cast in terms of the need to maintain agricultural production capacity in the EU. Given the bandwagon which has developed around this concern, suggesting that the EU is at risk of becoming dangerously dependent on food imports, it is worth restating two simple facts.

• The volume of EU agricultural production in 2009 was at its second highest level ever, down only slightly on the record level achieved in 2008. It is simply not the case that EU production capacity was seriously affected by recent volatility in agricultural markets.
• While EU does show a slight deficit on its agricultural trade balance, this has not been growing and in fact the EU emerged as a net food exporter in 2006, albeit the composition of its imports and exports are very different. The deficit in 2008 at $7 billion (compared to the value of imports of around $110 billion) was unusually large, but the gap narrowed to less than $3 billion last year.

The viable food production objective derived from this food security challenge is made up of three elements:

• To contribute to farm incomes and limit farm income volatility
• To improve the competitiveness of the agricultural sector and its bargaining power in the food value chain
• To maintain the spatial distribution of agricultural production including in areas with specific natural constraints where there is a risk of land abandonment.

The rationale for supporting specifically farm incomes has been endlessly debated, and there is no need to review the limitations of these arguments here. But to my mind these objectives add up to a fairly timid response to how some countries perceive the food security challenge as requiring a major stimulus to increase EU production. Maintaining farm production in marginal farming areas may prove to be a costly endeavour, but it is unlikely to have a major impact on production by virtue of the very fact that these areas are marginal with limited yield and production potential. Improving farm competitiveness and addressing market power in the food chain are responsible farm policy objectives which deserve support.

The environmental policy challenge is also broken down into three policy objectives:

• Securing the provision of environmental public goods
• Fostering green growth through innovation
• Pursuing climate change mitigation actions, while also enabling agriculture to adapt to climate change.

Again, these objectives would meet with broad approval, albeit there is a danger that in addressing climate change the polluter pays principle is turned on its head or forgotten by introducing subsidies to limit greenhouse gas emissions.

Finally, the balanced territorial development objective is in turn distributed across three objectives:

• Support for rural employment
• Promotion of rural economic diversification
• Encouragement of diversity in farming systems through improving conditions for small farms and local markets.

These objectives reflect the agro-centric vision of rural development as it has developed under Pillar 2 of the CAP and to some extent also the specific conditions of rural areas in the new member states where there is significant under-employment. The paper avoids bolder ambitions for balanced territorial development based on notions of improving the competitiveness of and quality of life in rural areas because many of the relevant measures lie outside the scope of the CAP.

Potential reform scenarios

On the face of it, these objectives do not differ radically from those used to legitimise the current CAP, although they are stated in crisper and more explicit language. The key question is how the document proposes to achieve these objectives. Here the paper sets out three alternatives:

• Enhanced status quo, meaning a continuation of the essentials of the current CAP but with more equity in the distribution of direct payments between Member States
• More balanced and targeted support achieved by some redesign of the direct payments scheme
• Sole focus on environmental and climate change objectives, thus abolishing market and income support

The favoured DG AGRI option

It is apparent that Option 2 is that favoured by DG Agri, though apparently the Impact Assessment will evaluate all three options. In this respect, the key elements of Option 2 are:

• Dividing the current Single Farm Payment into a basic income payment and an environmental payment.
• The basic income payment would require fulfilment of cross-compliance conditions and be based on transferable entitlements that need to be activated by matching them with eligible agricultural land, as with the current SFP. It would have an upper ceiling per farm and a minimum payment for small farms. It would be a uniform payment to all farmers in a Member State (or a region), implying the end of the historic basis for payments as practised in some Member States such as Ireland.
• The obligatory environmental payment, or ‘greening component’, would be linked to broad, annual, non-contractual environmental measures applicable across the whole of the EU territory and linked to the supplementary costs required to carry out these actions.
• A voluntary coupled support, continuing Article 68 measures, would be available to support particular types of farming important for economic and/or social reasons.
• A voluntary additional co-financed area-based payment to agriculture in areas with specific natural constraints in Pillar 1, replacing the existing LFA payment in Pillar 2.
• An extension of the possibility for crisis intervention (extension of intervention period, use of disturbance clauses and private storage) to other products.
• Unspecified new elements to improve the functioning of the food chain.
• Regarding Pillar 2, a greater focus on the environment and restructuring/innovation, an extension of measures to include a risk management toolkit (income stabilisation measures, insurance instruments, mutual funds), greater coherence with EU structural funds through a common strategic framework, the greater use of quantified targets and an outcome-based approach.

Missing elements in the favoured option

In trying to evaluate the likely impact of this package, there are at least two unknowns, apart from the size of the overall budget which will be determined as part of the financial perspective negotiations. The first is the proposed balance of expenditure between the basic payment, the environmental and marginal areas payment and Pillar 2. For example, if the basic income payment were introduced at a very low rate, then Option 2 would begin to look more like Option 3.

A more immediate issue is that the paper gives no clues as to how it sees the Pillar 1 budget for direct payments being allocated across Member States. The basic income payment would be an area payment, as is the SFP now. The paper explicitly rules out a single, flat rate, direct payment across Member States. It also advocates a transition to avoid major disruption from current entitlements, suggesting somewhat improbably that this would be achieved by guaranteeing that farmers in all Member States would receive on average a minimum share of the EU-wide average level of direct payments – minimising disruption needs to focus on moderating the cuts facing farmers in Member States with above-average payments currently rather than guaranteeing minimum payments to farmers in Member States with below-average payments.

As the national envelopes would in future finance very different schemes, some of which (such as the payment to marginal farming areas) would be voluntary, it is not at all clear how DG Agri proposes to justify the allocation between Member States or the criteria that it proposes to use. This is a major omission in the paper and will tend to emasculate the Impact Analysis unless criteria are introduced between now and the final publication of the paper

Evaluation

The leaked Commission draft for the CAP post-2013 does not propose to radically alter the trajectory of CAP reform. As Commissioner Ciolos has repeatedly stated, he is aiming for evolution rather than revolution. Nonetheless, the negative reactions from farm organisations to the leaked proposals (assuming that Option 2 is DG AGRI’s preferred proposal) indicate that it does represent a potentially substantive change.

True, a basic income payment to all farmers would be maintained, regardless of their income needs or current living standards. The opportunity to use the next financial perspective to phase out a generalised income payment to farmers has been foregone. However, the crucial question of how significant this basic income payment will be relative to other direct payments has not yet been answered. DG AGRI has worried about the impact of reduced payments on land values in the past, but this is not mentioned in the current paper.

The share of direct payments going to support environmental public goods will increase and, as these payments (in line with WTO rules) will be limited to the additional cost incurred by farmers, the overall distorting impact of large payments to EU farmers will be reduced as a result. However, environmental organisations may argue that the design of the ‘greening component’ of direct payments will mean relatively limited environmental bang for this environmental buck. Farmers are already concerned that the division of the payment into two will reverse the trend towards simplification and increase the complexity of the CAP.

The menu of rural development expenditures will be maintained and even increased. No serious analysis has been made whether these expenditures, however desirable, are warranted at the EU level or whether they would not better be left to the Member States. The proposals to integrate Pillar 2 rural development policies into broader regional development programmes and strategies remain rather vague.

In summary, it is hard to see that the current draft moves the debate on the CAP post-2013 very far along. It does little to challenge well-known positions and is thus unlikely to encourage movement in these positions. The result will be to push more of the inevitable bargaining into the endgame and make it more difficult to reach agreement within the time frame available.

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