Tag: cap reform

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The UK opts for Brexit, what next?

The British people in their referendum yesterday expressed their wish to leave the European Union. It is a decision I deeply regret. I believe it will have negative consequences for the UK in terms of economic growth and possibly constitutional stability. For the EU, it is not possible now to foresee the longer-term consequences. At a minimum, it adds one more dossier to the already overloaded agenda of EU leaders.

The referendum result in itself has no legal power. A British withdrawal only begins when Article 50 of the Lisbon Treaty is activated. EU political leaders in their statement today called on the UK to activate this quickly in order to minimise the period of uncertainty. The UK Prime Minister, David Cameron, has indicated in his statement today that this should be left to a new Conservative Government under a new Prime Minister, who he has indicated should be in place by October. On this issue, the British hold the cards. Indeed, given that the withdrawal process must be negotiated over a two-year period in any case, and that reflection is needed on both sides before negotiations begin, the EU leaders’ view seems petulant. European Council President Donald Tusk’s own statement was noticeably more restrained.

It is clear that the ideal of European co-operation based on shared values and binding rules has suffered a setback. On the other hand, unlike previous attempts to unify the continent, this was always to be an exercise of choice. For those of us who believe in the merits of the European project not only on idealistic grounds but because of the tangible benefits it can bring, it is mainly a matter of waiting. We must work to make the Union a success and a sufficiently attractive goal that in another generation it will be the objective of a new cohort of British leaders to seek re-admission.

This perspective lays out a very clear strategy for when the negotiations on the withdrawal process begin. We have heard some politicians call for retaliation. Defectors must be punished. The UK must be taught a lesson so that other Member States do not get the same idea and seek to follow its lead. This is a nonsensical and self-defeating approach.

Certain negative consequences are inescapable, but not because of ill-will. The fact that the UK will withdraw from the single market inevitably means that trade costs will rise because UK exports of goods and services to the EU will no longer be considered ‘internal’ trade. Goodwill alone cannot remove this obstacle.
Outside the single market, the UK will develop its own rules and regulations different to the EU. Suppose, to take an example, it decided to authorise the cultivation of GM grain crops. It is simply not conceivable that the UK could continue to export cereals to the EU without additional inspections and paperwork to show that its exports were free of GM varieties that had not yet been authorised for import into the EU. The same issues arise whenever regulations differ.

Also, the UK will most likely not be in a customs union with the EU. In any free trade agreement, it would maintain its own tariffs on third country imports. This means all UK exports to the EU (and all EU exports to the UK) will have to undergo a rules of origin check to ascertain that the imported goods are, indeed, mainly produced in the UK. Otherwise, for example, if the UK had a zero tariff on imported beef, Brazilian exporters could simply ship beef to the UK and re-route it into the EU thus avoiding the payment of EU duties. Again, even with goodwill, this clearly will not be allowed to happen. So trade costs will rise (this paragraph added 25 June 2016).

But beyond these inevitable consequences of a break-up, the EU’s long-term interest lies in maintaining as much mobility of goods, services, capital and people as is possible. Any future trade arrangement should not re-erect tariff barriers. Participation in the EU’s student mobility scheme and research programmes must be encouraged. The UK should remain a member of the EU’s Emissions Trading Scheme. There may be scope for cooperation with specialised agencies such as the European Food Safety Authority, the European Chemicals Agency, and others.

The EU clearly also needs to look at the reasons for its own failures in recent years. The eurozone has failed to stimulate demand and its deflationary bias has meant that the economic crisis in peripheral economies has been deeper and lasted longer than is necessary. While the problems caused by migration from Eastern Europe have been greatly over-stated, steps need to be taken to ensure a sensible solution to the issue of access to welfare benefits which should not be left to the European Court to decide.

For readers of this blog, this also means looking at the future of EU agricultural policy. While the overall majority in favour of Brexit was small, it was more than 2 to 1 among UK farmers. Possibly this was because UK farmers are in the older age group, and there was a strong correlation between age and support for Brexit. But it was also likely that gripes by farmers about CAP regulations, environmental rules and restrictions on the use chemicals played a role.

It appeared that often the EU was a convenient scapegoat when in fact the issues were the result of national decisions and problems. The UK Rural Payments Agency has been notoriously poor in disbursing farm payments, and had to revert to paper claims last year when its IT systems did not prove up to the task of managing the transition to the new CAP.

I have sympathy for UK farmers’ annoyance with what they see as the excessively politicised nature of EU decision-making across a range of issues such as GM approvals, neonicotinoids and glyphosate. However, the issue here is communicating a better understanding of the nature of risk to the wider public and political decision-makers, not an easy task given the self-echoing nature of social media and internet chat rooms.

Nor is the issue necessarily one of simply removing regulations and letting farmers do what they want, but rather ensuring that the regulations are sensible, effective and understandable. The last CAP reform acknowledged the value of flexibility in implementation to take account of the diversity of agricultural production systems in the EU. But this recognition of the need for flexibility was offset by a detailed micro-management of issues that failed to take into account the place-and region-specific nature of many environmental problems related to agriculture.

These issues need to be taken on board as discussions start on the future of the CAP after 2020, now without the UK. It should not be simply more of the same.

This post was written by Alan Matthews.

Picture credit: Public Domain Images

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Back to the CAP's future: An interest- or evidence-based policy?

In May 2016, at an informal AGRIFISH Council meeting, the Dutch Presidency will discuss the CAP post-2020. A mere 2.5 years after the last reform (finalised in December 2013) and just after the first execution of the new First Pillar payments and Rural Development Programme schemes in 2015, a new round of discussions about the rationale, goals, measures and impacts, of the CAP is already beginning; in effect, a new CAP reform.

Entering the first phase of reform, we may assume that the formation of political decisions and new legislation will take place in familiar stages. In the first stage, everything goes; it is marked by diverse and opposing opinions of Member States, think-tanks, interest groups and individuals. The menu is likely to include everything from the CAP’s complete abolition through radical or gradual changes to few or no changes; mainly, significant efforts will be directed towards keeping the policy alive – at all cost.

This phase, during which many will naïvely come to believe in the emergence of a long-awaited different, better CAP, will be followed by a strategic proposal in the form of a Commission Communication. As always and inevitably, it will waiver between keeping old and introducing new elements, depending on the political-economic setting, as well as the technical quality and political power and charisma of the Commissioner and his team. The proposal is likely to surprise us with new wording and justification, but what will be truly surprising is if form does not prevail over substance. Given the long-term shifts of power within the European institutions and the Commission’s consequent lacking political willpower and sometimes also professional manpower for the development of truly new ideas, it is unrealistic to expect much more from the next attempt at keeping alive the CAP and its main mechanisms.

The next predictable element to follow is the decision-making process and negotiations within and between the legislative bodies. It is a fact, confirmed during the last reform, that it is here, in the ordinary (former codecision) legislative procedure, that the conservative Agricultural Ministers and Parliamentary Rapporteurs additionally weaken the already-feeble basic logic of CAP change. At the moment, we cannot really expect much else. Maybe this is too pessimistic; however, the weakness of the European institutions, reflecting that of the European idea itself, hampers bigger changes in all political fields, let alone in one so bound by interest-based logic and (very) real economic interests.

The timeline for the discussions to come is not yet determined. This round of CAP implementation is also to have some kind of CAP Mid-term review that might speed-up the reform process, as did the one during Commissioner Franz Fischler’s term in 2013. However, as Alan Matthews and other prominent agricultural economists have pointed out (Swinnen, 2015), we are more likely to see an extended cycle of the existing policy, coinciding in length with the Multiannual financial framework (2015-2020), while changes, if there are any, will be linked to setting a new Financial framework post-2020. And we are also well-acquainted with the manner in which the European Council negotiates matters of finance and policy: it is based on arguments of power, directed towards maintaining the status quo and marked by interests, resulting in cosy deals.

How strong is the CAP needs-objectives-measures linkage?

There is certainly enough time to reflect; and entering the first phase of discussions, we can temporarily set aside the normally narrow and interest-based political-economic CAP framework. Let’s be naïve. Let’s base our deliberations on the fundamental principles of modern public policy formation and on the idea that the purpose of policy is to achieve goals set to address social issues. Modern policies allegedly follow the principles of the policy cycle: determining needs for public/state intervention, setting goals based on those needs, choosing measures and then changing, improving, upgrading policy through the monitoring and evaluation of its implementation. The use of clear indicators, feeding back into the process of choosing goals and measures that reflect political-economic reality, is an imperative of this process.

Regardless of differences in the theory and understanding of phenomena, the policy cycle system has long been established and incorporated into business and works for macroeconomic policies. Views of economic schools and individuals regarding what constitutes good or bad inflation and GDP growth, as well as opinions as to the best combination of policies, differ, but the primary objectives, postulates and dilemmas have found their way into economic textbooks, while the system of indicators is set independently and lends a foundation to development and policy guidelines.

What is more, the EU has enshrined the policy cycle in its legislation, making it an obligatory element in the functioning and modification of policies. This makes sense, as addressing public interest, limited funds and piled-up problems (or, in contemporary terminology, ‘needs and challenges’) requires the use of the established, objective approaches of evidence-based policy.

How are the principles of modern public policy incorporated into the CAP? At first glance, everything falls within legal and substantive frameworks. We are able to discern general principles, appealing to most, of a sustainable CAP, emphasising the economic, environmental and socio-territorial dimensions of food production. The Commission justifies the current CAP with the provision of public goods linked to food production. The RDP seems to function in a contemporary, strategic and prudent manner, based on elements of the policy cycle. There are evaluation studies for certain First Pillar measures. Eurostat keeps track of a broad array of statistical indicators, there is a special system for monitoring the economic status of agricultural holdings (FADN), agriculture-related environmental indicators are under development. A myriad of institutions and individuals are working towards a more rational agricultural policy, towards the attainment of goals and the improvement of the condition according to societal needs.

So, from a distance, all is well; perhaps some realist will be of the opinion that the CAP policy cycle framework is in need of some improvements, but is generally headed in the right direction, especially compared with the past. My personal assessment of the situation is substantially more critical. Namely, I posit that there is a giant substantive abyss between the CAP’s general goals and its mechanisms. While there is some link to be found between the CAP’s goals and the priorities and measures of the Second Pillar, there are no operational and quantified targets for the CAP as a whole, and especially for the First Pillar (i.e., 60% of the policy’s budget).

I cannot shake the feeling that in this part, policy emerges from a kind of black box, where meeting the needs of society comes second to balancing the demands of the political groups that have so far profited the most from the CAP, i.e., specific countries and groups of farmers. Public goods, on the other hand, are defined loosely, if at all, have no determined value, and are basically a political catchphrase rather than a real strategic policy goal.

We will not state anything new by claiming that income redistribution and historical rights are the key mechanisms of the CAP, while the stated goals and priorities are hardly more than a framework for the justification of the policy’s perpetuation. Even the Commission admits in a way that there is no coherent goal-oriented intervention framework to the CAP.

It is our political reality that the evaluation following the last CAP reform (the first EC call already took place in 2015) will be the first comprehensive assessment of the CAP policy framework in history, and the first to consider both pillars at once. First discussing reform, then determining measures in the policy process and lastly finding a comprehensive conceptual policy framework – through outsourcing – does this not amount to an unbearable levity in the perception of public policy? Its political-economic pragmatism is eroding rationality, destroying the logic of particular policies along with it.

Why no new CAP concepts on the floor?

Ironically, this new CAP fails to satisfy any of the stakeholders. On the contrary, there is mounting frustration and we are likely to witness quite a few radical suggestions coming from all sides of the interest spectrum. Net payer countries are likely to be especially vocal again. The agricultural interest sphere or at least an important part of it – French farmers, dissatisfied with the current direct payments scheme – will attempt to enforce payments to compensate for price-related losses (‘counter-cyclical payments’).

Environmental groups, whose power is rising, both in the eyes in the public and through European bureaucracy, wish to direct the policy in a completely different direction – towards the provision of ecosystem services.

Aside from these well-known options, there is a marked lack of new concepts and fresh ideas. A policy gone as sour as the CAP cannot be resolved using democratic interest-weighing. This method has come to the forefront during the last reform, but is driving the policy into a cul-de-sac.

There is a need to reflect on the policy’s fundamental logic and purpose, possible directions and strategies. This must be creative intellectual work, not caught up in the past, and reaching outside the scope of the ordinary. Europe is in dire need of a new approach, a need that extends well beyond the field of agricultural policy.

The lack of creativity in the programming of modern agricultural policy is also limiting a strategic approach to the part of the policy with the highest societal impact, namely rural development policy. In most Member States and regions, RDP has also lost its freshness. Its formation has become a matter of routine, status quo perpetuation and an exclusive dialogue, or, to be more accurate, relationship of control, between European and national/regional administrators. Evaluation procedures are too much a matter of form, not substance, and only partially – if at all – address real societal needs. Often, if not primarily, measures are formed by merging administrative conditions with the interests of specific stakeholder groups.

What is the CAP actually addressing?

The weak assessment of actual needs is the most prominent deficiency of the entire policy. For many a societal priority, there are no analyses or data, while the indicator system is very generalised and difficult to translate into the intervention logic. It can be worrisome for critical observers to see evaluation stuck at the level of technical observations, forgoing serious in-depth analysis of the real impacts and effects of policy. It is taboo to question the political-economic system, thus reducing an important part of the policy cycle to no more than a routine procedure – a task to be fulfilled for its own sake. Without strong motivation and passion, adequate intellectual resources and professional expertise, we cannot expect the emergence of a better, targeted policy, tailored to meet actual societal demands.

The prevalence of interest-based negotiation and bureaucratic functioning are not the only obstacles to a strategic focus of current European agricultural policy. It is a perhaps somewhat radical hypothesis that we are yet to set an effective strategic framework, founded on a clear, well-elaborated system of indicators for the monitoring of societal goals. Such indicators do exist, but are used more or less sporadically, and are certainly not linked to policy goals. As the last reform has confirmed once more, income policy is an important, if not crucial, CAP tool.
A brief look at the distribution of budgetary funds by measures confirms that this is the most important part of the policy. But what does this mean? The objectives are unrelated to farm income. We wish to increase farmers’ incomes – which farmers and by how much? The EU possesses FADN data, which allow for aggregate economic calculations for agriculture that might yield a coherent image, but appropriate tools have never been fully developed, or used with this target in mind. In this field, we simply stumble into a fog of uncertainty, inconsistencies and a cloaca of economic and political interests of individual groups and countries. If there are no clear indicators and objectives in this field, the entire policy cannot be more targeted and tailored to societal demands.

The situation is not much better in other fields of agricultural policy. Agri-environmental statistics is still in the development stages, or else at the level of specific studies, a far cry from a comprehensive monitoring system. And for certain serious matters that call for a much greater level of policy intervention, like rural poverty, there are practically no reliable statistical data.

How to rationalise the CAP?

Bearing in mind the difficulty of analysing the full complexity of the relevant relations and structures, it is my opinion that during the next round of discussions regarding the future of the CAP, European institutions should not simply resort to searching for new concepts of measures. Rather, they should lay new, solid foundations for an evidence-based policy. The ‘greening’ calamity of the latest reform has taught us that a new, rational policy concept cannot emerge solely from the offices of those responsible or through the process of democratic confrontation of opinions, based on the past and balancing of interests.

Therefore, the EU should start anew and first develop a system of development indicators (or upgrade the existing one). When we start answering questions regarding what farm income is and who receives it, where and how farming affects the environment and what the rural vitality of all of Europe is, we can start setting new policy goals. What does society really demand of agriculture? How are these interests valued by society and how were they evaluated until now? European agricultural policy is created with too little regard for such considerations and it should first be brought down and grounded in evidence and arguments. All is not so grim, to be sure; there are already certain research projects and calls for evaluation projects that perhaps indicate that there is light at the end of tunnel.

Defining indicators is a necessary, but not sufficient, step towards policy modernisation. The EU must also develop a system to define the desired state as opposed to the existing one. Target values must be set, after which efficient mechanisms must be developed and implemented to achieve these objectives. These mechanisms must take account of the political-economic framework and act as a bridge between specific instruments and policy objectives.

A convention for a new CAP is needed

Only reflecting and beginning anew in this manner will allow a serious shift in the CAP, not simply changing it for the sake of change, constrained by past decisions (through path dependency) and interest-based logic. EU institutions must act objectively, creatively, with intelligence and integrity. No twisting of words, searching for new ones, no fingers crossed – this way, ministers and MEPs will prevent serious shifts; I am pretty sure that in the current balance of institutional power, the Commission as the (sole) responsible initiator of legislation will not be able to develop a significantly better policy. The new policy can only be constructed within a serious and legitimised institutional innovation – a convention for a better CAP.

Who might be able to develop such a concept? Such an entity should, first and foremost, have a mandate from all three European legislative bodies in order to be considered legitimate. This new concept cannot be some obscure study conducted by the Commission, or an opinion of the Parliament’s Agriculture Committee experts. A viable new framework could, on the other hand, take form in a strong think-tank comprised of individuals of different profiles (administration, policymakers, academia, stakeholders), representing different institutions, but appointed democratically and transparently.

To reform or not to reform is the question now!

Food, the environment and the countryside are questions of far too great importance for Europe’s development to leave their solving to short-term interest resolution. It is first necessary to admit that radical reform is needed, then set an appropriate framework to find proposals, one that does not negate political reality and complexity or the need to balance interests, but is founded on a strategic approach, facts and hard data, quantitative objectives and a selection of the best instruments available.

The current “Brexit” discussion additionally requires a thorough reflection on the functioning and reform of the Common agricultural policy. The European Union requires such a shift in its CAP, and, again, not only in this policy field. The return from pragmatism and rejection of populisms is only possible if we insist on the use of facts, objective analysis and synthesis. The time for such an approach is now; two years from now, when a new institutional round begins, it will be too late for the CAP.

The start of a new discussion regarding CAP reform opens up possibilities for thorough reflection regarding the goals, mechanisms and impacts of this ever-contentious European policy. Its conceptual framework must be rebuilt from scratch, based on generally accepted indicators and their connection to societally accepted goals. This can be made possible through a deep institutional innovation and a new strategic, systemic approach endorsed by the European institutions. All else will lead once more into interest-based compromises, maintaining of the system’s flimsy foundations and a ‘pseudo-reform’, doomed from the outset.

This post was written by Emil Erjavec.

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Will there be a CAP reform in 2017?

On Friday last, I took part in a panel discussion at the Centre for European Policy Studies in Brussels on the theme “Will there be a mid-term review in 2017? And, if so, what should it do?” My contribution focused on the timing and procedural issues which will influence the prospect of a substantive early review of the CAP basic acts. Other speakers on the panel (Allan Buckwell from IEEP, Rolf Moehler formerly of DG AGRI and Paolo de Castro MEP from the Socialists and Democrats Group in the European Parliament) addressed what the contents of such a review might or should be.
The purpose of the event was to formally launch the book The Political Economy of the 2014-2020 Common Agricultural Policy: an Imperfect Storm which has been edited by Johann Swinnen and published by CEPS together with Rowman & Littlefield International. This book is a fascinating series of essays on the story behind the 2013 reform but also includes three chapters looking ahead to the future by three of Friday’s panellists, including one which I contributed. A copy of the book is freely available on the CEPS website.
There are a number of milestones set out in the CAP legislation which require the Commission either to report on the consequences of the last reform or to bring forward proposals (including the impact of greening and especially of ecological focus areas) and which could trigger more substantial proposals to revise the CAP regulations. In addition, Commissioner Hogan has outlined his own political agenda and that of this Commission which includes proposals on simplification as well as strengthening the link between the CAP and rural job creation.
Although some of these trigger points occur in 2016 (including the mid-term revision of the EU’s Multi-annual Framework (MFF) 2014-2020), I anticipate that the most likely trigger for substantial Commission proposals, if they were to be made, would be at the end of 2017 to coincide with the publication by the Commission of its proposals for the next MFF after 2020.
This will be a crucial document as it will set out the Commission’s view of the EU’s priorities in the years after 2020 including the level of the CAP budget that it deems appropriate, even if it could take up to a further two years before agreement is reached by the European Council and the Parliament gives its consent. One could expect that the environmental benefits (or lack of them) arising from the new greening payment which accounts for 30% of the CAP Pillar 1 budget might play a role as the negotiations take place within the Commission College before the MFF proposal is made.
On the last occasion, publication of the Commission’s MFF proposals in October 2011 was accompanied by a proposal for a major rewriting of all four of the CAP basic acts (direct payments, single common market organisation, rural development and horizontal issues). This reflected the outcome of a reform process which the Commission had launched the previous year in a Communication outlining various options for reform accompanied by an impact assessment, and which had been kick-started some years earlier under the French Presidency at Annecy in July 2008.
The situation is clearly different when the Commission comes to propose its next MFF at the end of 2017. Member states have been struggling to implement the last reform, and the first payments to farmers under the new rules were only delivered last month. Very limited evidence will be available on the impact of the new reforms even in 2 years’ time. The Commission’s political agenda does not suggest that a further major reform is on the agenda and, with so much else on its plate, it will be reluctant to re-open old battlelines around the CAP.
The legislative timetable complicates any prospects for a major reform because it is likely that negotiations would be completed in 2019 with a new Parliament and a new Commission. In any case, the enormous amount of flexibility which is given to member states under the new CAP means that member states can already largely mould the CAP to suit their political preferences without requiring a wholesale rewriting of the basic rules.
At the same time, the Council has flagged that simplification may require some changes to the basic acts, and one could envisage other changes to some of the parameters in the basic acts without completely rewriting them. For example, will the Commission propose further moves towards regional uniformity of direct payments after 2020? Will the Commission listen to those member states and MEPs in the Parliament which wish to see increased intervention prices? Would the Commission propose even greater flexibility to shift funds between the two Pillars? Will the broad framework of greening remain untouched?
My conclusion is that 2017 will be an important year for the CAP but we should not be misled by the experience of the Fischler Mid-Term Review in 2003 or the Fischer-Boel Health Check in 2008 to assume that a possible Hogan Mid-Term Review would take the same form.
In my view, it is more likely that we will see a rolling series of proposals for incremental changes in the various basic acts over the period of the Commissioner’s tenure, designed to address specific problems and issues, but without fundamentally changing the structure of the 2013 reform.
Of course, like all speculations about the future, this one could also be wrong…..
My presentation at the CEPS meeting is attached below

This post was written by Alan Matthews.
Photo credit: Euractiv

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Scrap the crop diversification greening requirement and find a sensible replacement

Here is a suggestion for the Commissioner’s simplification agenda: scrap the crop diversification requirement, which is one of the three ‘simple, generalised, non-contractual and annual actions that go beyond cross-compliance’ that make up the requirements for eligibility for the greening payment in the CAP’s Pillar 1. And use the money saved (up to half of the greening budget, or €6.1 billion in 2015) to promote improvements in soil organic matter (the main environmental objective of crop diversification) in a more cost-effective way.
The crop diversification greening measure is a scandalous waste of resources. Not only does the EU notionally spend €6 billion annually on this measure for virtually no environmental or other impact (as we will see). It is also a very complex measure to administer, requiring significant changes in the computer systems of the paying agencies to track individual cropping patterns and thus adding to the administrative costs of making payments to farmers. Prior to the recent reform, national paying agencies were spending €5 billion annually on control costs alone adding a further 8.5% to the cost of the CAP. They estimate this could double as a result of the Ciolos 2013 CAP reform.
JRC study on crop diversification

The most recent information on the (lack of) effectiveness of the crop diversification measure comes from a Joint Research Centre report on the development of An EU-wide Individual Farm Model for Common Agricultural Policy Analysis (IFM-CAP). This is an exciting new microsimulation tool which builds on the FADN farm database (around 60,000 individual farms representing around 5 million commercial holdings in the EU) to permit the analysis and simulation of agricultural policy measures that target groups of farms or have different impacts on heterogeneous farms. The first empirical application of this model has been to analyse the likely impacts of the crop diversification measure.
The JRC results are striking, even though they do not differ greatly from the results in the Commission’s own impact assessment of the crop diversification measure also based on the FADN database which accompanied the publication of the CAP reform legislative proposals in October 2011.
First, some background statistics to set the results in context. Out of the five million commercial farms represented in the IFM-CAP model for the EU-27, the JRC estimates that 31% are subject to the crop diversification measure. They refer to these as ‘concerned farms’, and the arable area on these farms as the ‘concerned area’. The remaining 69% of commercial holdings are exempted from the measure. The latter include non-arable farms, farms with a small arable area (less than 10 ha) or farms with a large proportion of land planted with fodder crops.
This 31% figure is an average with the share of concerned farms in individual member states varying from 10% in Slovenia to 90% in Denmark. Those member states with a high proportion of concerned farms (> 60%) have a farm structure dominated by large farms and/or by specialised farms and/or have a large arable sector. Member states with a low share often have a high proportion of small commercial farms in the total FADN sample, which are exempted from the diversification measure.
The JRC analysis is based on a hypothetical baseline scenario for the year 2020 assuming the continuation of the CAP measures in place before the CAP 2013 reform. In the baseline scenario, the proportion of farms in 2020 not complying with the diversification measure is around 15% of concerned farms in the EU-27. This is the proportion of farms that need to adjust their land allocation in order to comply with the diversification measure. Otherwise, these non-compliant farms would face a reduction in subsidy (i.e. lower greening payments) under the CAP 2013 reform.
The impact of the crop diversification greening measure

The JRC analysis then considers the impact of introducing the crop diversification requirement as agreed by the Council and Parliament in the CAP reform package in 2013. The cropping adjustments made by individual farms are modelled taking into account the financial costs they will face if they remain non-compliant. These financial costs (discussed further below) can include the loss of some or all of their greening payment plus an administrative penalty. Farmers with a high proportion of high-margin crops may decide that non-compliance remains the most profitable option for their farms.
Under the 2013 diversification scenario, the JRC estimates that the proportion of non-compliant concerned farms in the EU-27 falls from 15% to 10%. However, it notes that these farms may have partially adjusted their cropping pattern to the requirements, even though a proportion of their area remains non-compliant. In fact, they conclude that approximately 80% of non-compliant farms reduce their non-compliance level in response to the introduction of diversification measures relative to the baseline, while the remaining 20% (or 2% of the concerned farms) do not change their non-compliance level at all.
To summarise, the JRC study concludes that the crop diversification measure will induce 5% of concerned farms which were non-compliant to fully comply with the crop diversification requirements, and a further 8% of concerned farms to partially comply. In terms of all commercial farms (given that concerned farms are 31% of the total), the total proportion of commercial farms affected either wholly or partially is (13% x 31%) or 4% of the total. As the commercial farms in the FADN database represent less than half of all EU farms covered by the Integrated Administrative and Control System (IACS) to which farm payments are made, we can conclude that less than 2% of all EU holdings are affected by this measure.
Comparison with Commission impact assessment

The Commission’s impact assessment came to very similar results also using the FADN database. It concluded that 92% of commercial farms would not be affected by the measure while 8% would be (compared to just 4% in the JRC study). This discrepancy is primarily explained by the Commission’s assumption that all non-compliant farms would move to compliance, while the JRC study shows that less than half of them would. When other differences between the two studies are taken into account (e.g. the Commission impact assessment was based on hypothetical crop diversification rules, whereas the JRC study was based on the actual legislative outcome, and the JRC results are based on a simulated baseline in 2020 while the Commission impact assessment is based on 2005-2007 data), the results are strikingly similar.
But the absurdity of the crop diversification measure eventually agreed is best captured by the proportion of land that will be affected. The JRC study shows that the proportion of non-compliant area is reduced by more than 50% in the EU-27 (whether measured relative to the concerned arable area or the total arable area) under the diversification scenario. This apparently significant change in behaviour is explained by the relatively high subsidy reduction that would be imposed on farms if they do not comply. But the arable area affected by this change of behaviour is tiny, given that the non-compliant area is tiny to start with.
According to the JRC study, the proportion of non-compliant area in the total concerned arable area (i.e. the arable area on those farms concerned by the requirement) is 1% in the baseline in the EU-27 (varying between 0% and 6.5% for individual member states). When expressed relative to the total arable area (including the arable area on farms exempted from the requirement), the non-compliant area in the baseline is 0.6% of the total in the EU-27.
So even though the non-compliant area in both cases is reduced by 50%, the area of arable land affected is tiny – around 0.3% of all arable land will be diversified as a result of spending €6 billion !
Again, this result was foreseen in the Commission’s impact assessment which concluded that 2% of arable land would require to be diversified. Given the Commission’s assumption that all non-compliant land would be brought into compliance as well as other differences in the methodologies, there is a good correspondence between the results from the two studies.
(For technical boffins, the JRC study is calibrated to a three-year average cropping pattern in the FADN sample farms. Over a three-year period, with crop rotation, the average share of individual crops is likely to be lower than if a snapshot of a single year were taken. Thus the JRC study probably underestimates somewhat the number of farms and the area of land that will be affected by the crop diversification requirement.
On the other hand, other study limitations move the results in the other direction. For example, the JRC study does not take into account that organic farms or farms in the small farmer scheme are also exempted from the crop diversification requirement, the fact that member states can opt to define alternative practices that yield an equivalent or higher benefits for climate or the environment, nor does it allow for the possibility that we will see arrangements between farmers to allow them to overcome the constraints on their desired cropping practices.)

Greening penalties

Although it is a footnote to the main argument, the proportion of non-compliant farms in the diversification scenario makes a small difference to the overall area of land that will be affected by the measure. When Commissioner Ciolos announced the greening measures, he intended these to be compulsory for all farms receiving the basic payment/single payment. This language is carried over into the guidelines produced by paying agencies which explicitly refer to the greening measures as mandatory.
In practice, however, the mandatory nature of the greening measures depends on the sanctions that apply to farmers that decide not to comply. These sanctions are of two types. First, a farmer can lose some or all of the relevant greening payment (for the crop diversification measure, the relevant withdrawal can be up to half of the total greening payment). Second, a non-compliant farmer will also face an administrative penalty. According to the recital of the delegated regulation specifying the way that administrative penalties are calculated, ‘administrative penalties under this Regulation should be considered dissuasive enough to discourage intentional non-compliance’.
In my view, it is a basic requirement for a just society that those affected by laws should be able to understand the consequences and sanctions if the law is not observed. But the legislation setting out the sanctions to be applied in the case of non-compliance with the CAP Pillar 1 greening requirements is among the most complex that I have ever read. The relevant provisions are set out in Articles 24 through 28 of the Commission’s Delegated Regulation 640/2014.
The crop diversification obligation differs according to the size of the arable area, as shown in the table below. The crop diversification requirement applies only to farms with an arable area greater than 10 hectares. Farms with between 10 and 30 arable hectares must grow at least two crops, and the main crop cannot exceed 75% of the arable land. Farms with more than 30 ha arable crops must grow at least three different crops; the main crop cannot exceed 75% of the arable area and the two main crops cannot exceed 95% of the arable area. As noted previously, the sanctions for non-compliance are made up of two elements: a reduction in the greening payment related to the extent of non-compliance, and an administrative penalty.
The reduction in the greening payment due to non-compliance with the crop diversification requirement is set out in Article 24 of the Delegated Regulation. It is defined as a reduction in the area eligible for the greening payment compared to the eligible area if the farm was otherwise compliant. The area of land withdrawn (W) is the product of three elements (which we will call the Article 24 formula):
• The total arable area (AL)
• The ratio of difference (RD)
• A fixed coefficient of 50%
The ratio of difference is defined as the excess arable area planted to the non-compliant main crops (i.e. the area beyond 75% of the total arable area for the first main crop, and where relevant, the area beyond 95% for the first two main crops) divided by the area required for the remaining crops. Some examples of the way the greening payment reduction is calculated are shown in the table (double click on the table to enlarge).

For each of the four concerned farms, we assume that the eligible area to be used for the calculation of the greening payment is the same as the total arable area (i.e. the farmer has sufficient entitlements to be able to claim the basic payment on all of his or her arable area and complications due to weighting coefficients for ecological focus areas are ignored). Farm number 1 has an excess non-compliant area of 1 hectare. This is compared to the requirement for other crops on that farm which is 25% of the arable area or 5 hectares. Thus the ratio of difference (RD) for this farm is 20%. For the larger arable farms, two ratios of difference are calculated and the total ratio of difference is the sum of the two. However, there is a constraint that the total ratio of difference cannot exceed 100%.
Thus, applying the Article 24 reduction formula (before taking administrative penalties into account) would mean a reduction in the eligible area for the greening payment for farm Number 1 of 10% or 2 hectares. For farm Number 4, the reduction in the eligible area is the maximum of 50% or 50 hectares. This assumes that the farms are compliant with their other greening obligations (with respect to the maintenance of permanent grassland and ecological focus areas, EFAs) and that non-compliance is only with respect to the crop diversification requirement.
Administrative penalties
The administrative penalties depend on the severity of the non-compliance with all three of the greening requirements and are set out in Article 28 of the Delegated Regulation. We assume that non-compliance is only due to the crop diversification requirement. The severity of non-compliance is determined by the difference between the eligible area for the greening payment assuming full compliance (EL) and the eligible area for the greening payment as reduced using the Article 24 formula (EL – W), expressed as the following proportion (W / (EL – W)). The administrative penalty applied depends on the size of this ratio (let us call it the penalty ratio).
However, the Council and Parliament agreed that no administrative penalties would apply in 2015 or 2016. In 2017, the administrative penalty as determined by the appropriate formula is divided by 5 but limited to 20% of the amount of the farmer’s greening payment. For 2018 and onwards, the administrative penalty as determined by the appropriate formula is divided by 4, but limited to a maximum of 25% of the amount of the farmer’s greening payment.
The ‘appropriate formulas’ for the administrative penalty are as follows:

  • If the penalty ratio is less than the smaller of 3% (or 2 hectares), this is considered a de minimis situation and no administrative penalty applies.
  • If the penalty ratio is between 3% and 20%, the administrative penalty is a (further) reduction in the eligible area for the greening payment of twice the reduction in the eligible area as calculated under the Article 24 formula. Thus, in the case of farm Number 1, the Article 24 reduction in the eligible area is 10% or 2 hectares. The administrative penalty is twice this, or a further reduction of 20% or 4 hectares. However, for 2018 and onwards, this penalty is divided by 4, giving a penalty of 5% or 1 hectare. So the total loss of greening payment for this farm because of its non-compliance with the crop diversification requirement is 10% in 2015 and 2016, and 15% from 2018 onwards.
  • If the penalty ratio is between 20% and 50%, then the penalty is equivalent to no aid being applied, where the aid is what the farmer would have received after the application of the Article 24 formula. After 2018, the penalty applied is divided by 4. Take, for example, farm number 3, where the penalty ratio is 25%. Here the farmer would have received aid for 80 hectares under the Article 24 formula. The penalty applied in 2018 and after is the loss of aid on 20 (80/4) hectares, or 20%. Thus this farmer would lose 40% of their greening payment (20% due to the withdrawal of eligible hectares under Article 24, and a further penalty of 20% under Article 28) due to non-compliance with the crop diversification requirement.
    Note that this farmer only had 2 non-compliant hectares but they breached the two-crop rule, illustrating the great importance to larger arable farmers to observe the minimum 5% of their arable area for crops other than the two main crops (this point has previously been highlighted by Simon Ward of Inside Track in his 2014 post on the greening penalty for non-compliance with crop diversification).
  • Finally, if the penalty ratio is greater than 50%, then the administrative penalty is determined as the greening payment that would have been paid prior to any deductions under Article 24, that is, the payment on the full eligible area. Again, this amount is divided by 4 for 2018 and after. Consider farm Number 4 in the example, where the penalty ratio is 100%. In this case the penalty would be 25% of the expected green payment and the total financial sanction would be the loss of 75% (50% + 25%) of the expected green payment. In this case, because the penalty is capped at 25% for all greening measures, no further penalty would apply if the farm was also non-compliant with either the permanent grassland or EFA measure.


    • In the case of cross-compliance, the paying authority can judge that the farmer is in a state of ‘intentional non-compliance’ and, depending on the severity of the breach, can remove up to 100% of a farmer’s payment. Intentional non-compliance is not specifically legislated for in the case of the greening measures. However, if a farmer persists in non-compliance for more than three consecutive years, then he or she will have their eligible area reduced by the total arable area multiplied by the ratio of difference, in addition to the appropriate penalty. Effectively, this means that multiplication by the 50% coefficient in the Article 24 formula is removed, and the area withdrawn for the purposes of determining the greening payment is doubled.
    Thus, the mandatory nature of greening depends on the dissuasive power of the financial sanctions. Interestingly, in the JRC analysis no member state (apart from the special case of Malta) becomes 100% compliant and, as we saw, the average rate of non-compliance across the EU as a whole will be around 10% of the concerned farms.
    Conclusions

    Because the land area affected by crop diversification is tiny, any environmental benefits are correspondingly vanishingly small. The additional environmental benefits of the measure are even smaller because the crop diversification measure replaced a measure on crop rotation included in the standards for Good Agricultural and Environmental Condition (GAEC) which farmers must observe for eligibility for the basic payment/single payment.
    Now the GAEC standard on crop rotation was extremely weak as it only required standards for crop rotation where applicable. Few member states were willing to define standards that might affect farm income and ‘freedom to farm’. Control issues also played a role. Nonetheless, the fact that previous (weak) standards that would have affected all arable land have been abolished in favour of a crop diversification measure that affects only 0.3% of arable land makes the environmental benefits of the crop diversification measure even more dubious.
    It is also an unfair measure. While small arable holdings are exempt, the main costs fall on medium-size rather than large holdings. The latter are sufficiently large to be usually compliant, whereas medium-sized holdings are more likely to be specialised and thus to be non-compliant with the crop diversification requirement.
    It is clear that the current crop diversification measure is not fit for purpose, and should be repealed. Environmental NGOs will argue that the problems occurred in the legislative process where legislators exempted significant amounts of arable land as well as introducing the possibility of equivalent measures and that if the rules were only tightened up all would be well.
    The evidence does not support this position. Bringing more arable farms into the net would increase the area of land affected by a relatively small amount, but the additional costs would be very significant and the environmental benefits questionable. Also, the control system is complex and, from a farmer’s perspective, impenetrable as the previous discussion of the financial sanctions for non-compliance shows.
    We clearly need a better approach to address soil fertility and soil health, but the first step is to recognise that the current greening measure does not work.
    This post was written by Alan Matthews

    Picture credit: © Copyright Jeff Buck and licensed for reuse under a Creative Commons Licence.

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    Prospects for CAP reform after 2020

    Even though the ink is hardly dry on the 2013 CAP reform, thoughts are turning already to the prospects for the next reform. I have already discussed some aspects relevant to the CAP post 2020 in this post, focusing in particular on a possible timetable of reform and some political economy issues likely to be important in determining the scope and ambition of any revision to the current regulations. I subsequently elaborated that post as a chapter in a book edited by Jo Swinnen on The Political Economy of the 2014-2020 Common Agricultural Policy: An Imperfect Storm which will be published next month (more on that book in due course). Another good read on this topic is Allan Buckwell’s recent thoughtful contribution putting forward ideas for a future CAP.
    I recently returned to this topic when I was asked to give a presentation on the prospects for CAP reform after 2020. In this presentation I discuss some factors likely to determine the economic status of agriculture in the coming years, and I highlight some of the main issues – direct payments, greening, soil health and climate policy – that should be on the agenda for the next CAP reform (of course, this is not a complete list but is deliberately selective for reasons of time). However, those seeking reform will have to address a widespread sense of ‘reform fatigue’, and I still think that the more likely outcome will be a continuation of the current policy with minor tweaking into the next multi-annual financial framework period.
    The presentation can be viewed here; to download, open in Slideshare by clicking on the owl icon bottom right.

    This post was written by Alan Matthews.
    Photo credit: Irish Independent

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    Two steps forward, one step back: coupled payments in the CAP

    One of the success stories in the evolution of CAP reform has been the change from supporting the product to supporting the producer by moving, first, from market price support to coupled payments, and then by decoupling these payments.
    The 2013 CAP reform has reversed this process. Coupled aids have started to grow again, from a projected €2.7 billion in 2014 to a projected €4.8 billion in 2015, an increase of nearly 75%. Their share of total direct payments will rise from 6.7% in 2014 to 11.6% in 2015. This step backwards was one of the negative outcomes of the recent CAP reform. The limited data available raise the question whether the new coupled payments fully comply with the criteria set out in the new direct payments regulation.
    Coupled payments in successive CAP reforms
    The decoupling of CAP direct payments started in the 2003 Fischler reform (implemented from 2005), continued with the subsequent reforms of individual commodity regimes and reached its high point in the 2008 Fischer Boel Health Check. By the end of the Health Check implementation period, coupled payments had not completely disappeared but their share of total direct payments had fallen to less than 7% of the EU’s total direct payments
    In the table below, coupled aids are included in the EU budget in Article 05 03 02 ‘other direct aids’. The additional amounts of aid refer to reimbursements under older regulations and have gradually disappeared over time. Two new articles were added in the 2014 draft general budget but have no influence on the evolution of the share of coupled payments over time.

    The remaining coupled payments had two different legal bases. Some were a carryover from the partial coupling allowed under the Fischler reform. In that reform, for example, member states could continue to couple 25% of arable payments and 40% for durum wheat, 50% of payments to sheep and goats, 100% suckler cow premium and 40% of slaughter premium or 100% slaughter premium or 75% of special male premium. Some coupled payments for minor crops and processing aids also continued.
    The 2003 reform also allowed member states to retain up to 10% of their previously coupled payment ceilings under Pillar 1 for specific supports to farming and quality production (Article 69 of Council Regulation (EC) No. 1782/2003). These additional payments had to be granted for specific types of farming which were important for the protection or enhancement of the environment or for improving the quality and marketing of agricultural products.
    The 2008 Health Check integrated the partially coupled payments in the arable crops, olive oil and hops sectors into the Single Payment Scheme from 2010. Processing aids and most other coupled payments, including some specific payments in the beef sector, had to be integrated into the single payment scheme by 2012 at the latest. Following the Health Check, the suckler cow and sheep and goat premia as well as payments for cotton were the only formally coupled payments allowed after 2013.
    However, the Health Check expanded the scope of specific payments under Article 69 (renumbered as Article 68 of Regulation 73/2009) while keeping the overall 10% share of each member state’s direct payments ceiling. Their purpose remained assistance to sectors or regions with particular difficulties but their use became more flexible. Specific aids could be used to help farmers producing milk, beef, goat and sheep meat and rice in disadvantaged regions or to support economically vulnerable types of farming.
    In order to comply with WTO domestic support disciplines, support for potential trade-distorting measures under Article 68 was limited to 3.5% of national ceilings. This covered support for types of farming important for the protection of the environment, support to address specific disadvantages, and support for mutual funds.
    Note that additional coupled payments could be provided in the new member states as complementary direct national payments. This scheme allowed the new member states to use their own national financial resources to add to the EU payments during the transitional period as EU payments were phased in (Bulgaria and Romania can make use of these payments in 2015, and Croatia until 2022). Because these payments were nationally-financed and of a transitional nature, they are not taken into account in this post.
    The breakdown of expenditure on EU coupled payments in the 2015 draft budget (prepared before member states reported their choices with respect to the voluntary coupled payment scheme (VCS) included in the 2013 CAP reform) is shown in the following table. It shows Article 68 specific payments accounted for almost half of the total, following by coupled payments to the suckler cow herd, POSEI special payments to the EU’s outermost regions (“Programme d’Options Spécifiques à l’Éloignement et l’Insularité”) and cotton area payments.

    Coupled payments in the 2013 CAP reform

    The 2013 CAP reform altered the framework for coupled payments. Because Article 68 specific aids were abolished, some replacement had to be found. The new framework has the following characteristics (Title IV of Regulation (EU) No 1307/2013):
    • The list of sectors eligible for coupled support payments is greatly expanded (cereals, oilseeds, protein crops, grain legumes, flax, hemp, rice, nuts, starch potato, milk and milk products, seeds, sheepmeat and goatmeat, beef and veal, olive oil, silkworms, dried fodder, hops, sugar beet, cane and chicory, fruit and vegetables and short rotation coppice).
    • Total support should be limited to 8% of each member state’s direct payments ceiling, or exceptionally 13% in those countries applying the SAPS scheme, or where member countries had used more than 5% of their direct payments ceiling in any year during 2010-2014 for coupled payments including Article 68 payments. These percentages could be increased by up to 2% if this support was used for protein crops. A further derogation allowed member states which used more than 10% of their national ceilings for coupled payments including Article 68 payments in any year between 2010 and 2014 to be permitted to use more than 13% of their national ceiling for coupled payments “upon approval by the Commission”.
    • Member states had to notify their decisions to the Commission by 1 August 2014. However, member states can revise their decisions with effect from 2017, either increasing, decreasing or ceasing the amount of coupled support they provide within the relevant limits.
    Importantly, all voluntary coupled payments within these ceilings should comply with a number of conditions, as follows:
    • Coupled support may only be granted to those sectors or to those regions of a Member State where specific types of farming or specific agricultural sectors that are particularly important for economic, social or environmental reasons undergo certain difficulties.
    • Coupled support may only be granted to the extent necessary to create an incentive to maintain current levels of production in the sectors or regions concerned.
    • Coupled support shall take the form of an annual payment and shall be granted within defined quantitative limits and be based on fixed areas and yields or on a fixed number of animals.
    The last bullet point means that future coupled payments would qualify as Blue Box payments under the WTO Agreement on Agriculture disciplines on domestic support.
    Member state choices on the use of coupled support

    DG AGRI has summarised the choices made by member states with respect to the flexibilities allowed in the 2013 CAP reform direct payments regulation. Based on this summary, the positions of member states in their use of the voluntary coupled support scheme both with each other and with their past practice is shown in the following table.

    Nine member states have opted to use less than the standard 8% ceiling (IE, NL, LU, UK, AT, DK, EE, EL, CY). Eleven member states have the maximum percentage of 13% with 9 of them also using all or part of the additional 2% available in case of support to the protein crops sector.
    Virtually all of the SAPS countries have made use of close to the maximum allowed ceilings (13% plus 2% protein crops) with the exception of Estonia.
    Three of the old member states (Belgium, Portugal and Finland) have been given permission to exceed the 13% limit. Germany has maintained its position that it does not give coupled support and is the only member state not to provide coupled support in 2015.
    In some other old member states, the importance of coupled support has fallen, notably in Austria but including Ireland, Netherlands, Greece and Portugal (for the latter two countries, this may reflect the fact that the Commission figures do not include cotton area payments in 2015 as these are separate from the voluntary coupled payment scheme).
    Italy and Sweden have taken the opportunity to considerably increase their share of coupled support, as has France which has increased to the maximum allowed. Malta is an outlier and makes use of the special derogation in the regulation that member states may choose to use up to €3 million per year for financing coupled support.
    The Commission summary also gives details of the sectors mostly supported. In 2015, 42% of the total VCS envelope will support the beef and veal sector in 24 member states, 20% will support the dairy sector in 19 member states, 12% will support the sheep and goatmeat sector in 22 member states, 10% will support protein crops in 16 member states, 5% will go to support fruit and vegetables in 19 member states, and 4% will go to the sugar beet sector in 10 member states.
    Evaluation

    The generous ceilings in the new direct payments regulation and the choices made by member states mean that coupled support will increase significantly in 2015 compared to recent years. While the distorting impact of these choices (both with respect to those sectors in other member states which are not subsidised as well as for third countries) will be limited by the requirement that the coupled payment schemes should be production-limited, they nonetheless represent a backward step in the historical process of CAP reform.
    Some final questions remain. It is not clear whether all of the payments meet the relevant criteria in the regulation that the sectors must be important for economic, social or environment reasons (hardly a constraint, as a member state can make a case for any sector) and must be undergoing certain difficulties (which would presumably manifest themselves in falling production) and that the support should be limited to maintaining current levels of production but not create an incentive to increase production (although this can really only be checked ex post).
    Somewhat surprisingly, the Commission summary notes that DG AGRI does not approve/disapprove the notifications and member states remain the only responsible of the decisions they have taken in implementing the reform, except in the case where the VCS is more than 13 (+2)%. Surely the Commission has a wider responsibility to make sure that member states comply fully with the regulation as a whole? Certainly, this is something I hope the Court of Auditors will examine in the near future.
    We should also bear in mind that member states get a second bite at the cherry before August 2016 and that, conceivably, the share of coupled payments could be increased after 2017. DG AGRI should be prepared to be more aggressive in checking whether all coupled payment schemes meet the regulation’s criteria at that stage.
    This post was written by Alan Matthews.

    Graphic: Tax Bell

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    Impact of the MFF negotiations on the CAP 2013 reform

    The CAP 2013 reform was the first negotiated under the ordinary legislative procedure (co-decision) in which both the Parliament and the Council had equal powers. A project undertaken by the Centre for European Policy Studies in Brussels for the European Parliament’s Policy Department has sought to examine what impact and influence the Parliament had on the CAP 2013 out-turn as a result of co-decision. Did co-decision give the Parliament a greater opportunity to influence the final outcome, who were the key players in shaping the Parliament’s views and what did the Parliament use its influence to achieve?
    The final study, when it is published, will throw light on these issues. The team behind the study (of which I was one) also commissioned a series of case studies on specific issues raised in the co-decision process. These case studies are now available on the CEPS website. They include a detailed amendment analysis by Imre Fertð and Attila Kovács of the Council and Parliament amendments to the Commission’s original draft proposals which evaluates the relative effectiveness of the two bodies in carrying their amendments into the final legislation, a detailed study of the role of COMAGRI by Christilla Roederer-Rynning, an analysis of the evolution of the greening debate by Kaley Hart, and an analysis of the European Parliament’s position on market regulation by Alessandro Olper.
    The case study that I contributed concerned the impact of the simultaneous multi-annual financial framework (MFF) negotiations for the period 2014-2020 on the European Parliament’s influence on the CAP 2013 reform. I argue that the parallel negotiations on the MFF influenced the CAP reform outcome in three ways.
    The first connection arose in the agenda-setting phase of the CAP reform. DG AGRI’s reform proposal was motivated in part by the need to address new challenges facing EU agriculture and rural areas, but also by the need to create a narrative which would help to defend and maximise the CAP budget in the negotiations within the Commission on the size and composition of the MFF it would propose.
    The Commission’s proposal to maintain the CAP budget in the MFF at the 2013 level in nominal terms was clearly based on the expectation that the new CAP would focus much more on environmental objectives than before.
    A second connection occurred through the scheduling of the two sets of negotiations. From the outset, the Parliament indicated that it was not prepared to legislate on CAP reform until the MFF figures were known. The delay by the European Council in finalising the MFF figures until February 2013 had two consequences.
    First, it compressed the time available to conclude the CAP negotiations given the preference by all sides that an agreement had to be reached before the end of the Irish Presidency in June 2013. However, there is no clear evidence that a longer period for the trilogues would have changed the outcome or led to a different agreement.
    Second, the insistence of the Parliament that no serious CAP negotiations should begin until the budget numbers were known worked to strongly favour those holding to a status-quo oriented position on the reform proposals while disadvantaging those who sought a more radical change in the orientation of the CAP.
    This was because once the MFF was adopted by the European Council and its overall size and ceilings accepted by the Parliament in early 2013, the threat of a budget reduction if greening were watered down played no role in determining the outcome. This allowed farm groups and status-quo minded member states and MEPs to weaken the ambition of the greening proposals without having to worry that this could lead to a reduction in the CAP budget. If the CAP reform had been negotiated while there was still uncertainty over the budget figures, it is possible that the final MFF outcome might not have been so generous to agricultural spending.
    But it was the third linkage between the MFF and CAP negotiations which raised the question of co-decision most sharply. This was the inclusion in the European Council’s MFF conclusions of issues which would ultimately be incorporated into the new CAP regulations to be decided by co-decision. That the European Council has the right to pronounce on substantive policy issues is not, I think, in question.
    The difficulty arose because the issues which the European Council included in its MFF conclusions were given a privileged status by the Council negotiators in the trilogue discussions. Although the Parliament eventually gained some small concessions in the final settlement, its role as co-legislator on these issues was certainly diminished.
    The fact that the Parliament succeeded in getting some amendments to the European Council’s position is an important marker for future negotiations. Nonetheless, I argue in the case study that the Parliament’s power to influence legislation through co-decision will inevitably be curtailed in situations where the European Council has pronounced by unanimity.
    In particular, I draw a distinction between CAP legislative decisions which directly affect the net flows from the EU budget to member states (e.g., the external convergence formula, the distribution of Pillar 2 funds) and other legislative issues. I argue that the Parliament will always find it virtually impossible to change the unanimous agreement of Heads of State and Government on the direct allocation of resources. If the Parliament is to have influence on these resource allocation issues, then it must exercise that influence prior to the European Council conclusions being reached.
    On the other hand, all other CAP-related issues should be fully open in the trilogue negotiations between the two institutions. It does not seem to be in the spirit of co-decision for the Council to argue that certain issues are non-negotiable simply because the European Council has pronounced on them.

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    Simplification as a top priority in 2015

    The heading of this post is taken from the title of the speech delivered by the Commissioner for Agriculture and Rural Development Phil Hogan when addressing the EP COMAGRI on 3 December last. It follows his commitment in his confirmation hearings to a simplification and subsidiarity strategy for the CAP. It seems simplification will be a big buzz word in CAP discussions in 2015. But what can we expect from this initiative, and how important is it likely to be in practice?

    Simplification: a Sisyphean task

    CAP simplification has been a mantra of all previous Commissioners. For example, shortly after taking up office as Commissioner for Agriculture in 1995, Franz Fischler, in a speech on 28 September 1995, declared:

    For my part, I intend to contribute to review existing E.U. legislation, notably in my area of competence, so as to make the C.A.P. easier to understand and to apply. C.A.P. simplification is an overriding objective, not only because our farmers, in particular the smaller ones, seek it and need it, but also because, without it, it will prove exceedingly difficult to implement the C.A.P. in the acceding East European countries. For it is no secret that their management capabilities are, for the time being, below those in the West.

    Similarly, when Mariann Fischer Boel succeeded Franz Fischler in 2004, she announced at the December 2004 Agriculture Council her intention to bring forward a communication on CAP simplification. The background to this and subsequent developments are described on DG AGRI’s simplification web page. The 2005 Communication was followed by a big simplification conference in 2006 and the publication of a rolling simplification Action Plan. The latter contained a commitment to reduce the administrative burden arising from the CAP by 25% by 2012.

    Simplification was again in focus in 2009 when the Commission published a review of progress towards simplification. It concluded:

    Thanks to considerable progress already made in simplifying the Common Agricultural Policy and other measures still to be carried out, the Commission is confident that it will meet its objective of reducing the administrative burden arising from the CAP by 25 percent by 2012.

    Later that year, in November 2009, DG AGRI summarised its responses to 39 simplification suggestions submitted to the Agriculture/Fisheries Council in April of that year and which were incorporated into its rolling simplification Action Plan.

    In November 2013 DG AGRI published its latest stock-taking of the rolling simplification action plan which at that stage contained 72 proposals of which 70 had been completed and the remaining 2 were classed as ‘work in progress’.

    A focus on simplification and reducing administrative burdens is not unique to the CAP but has been part of the theme of better regulation launched as part of the EU2020 growth and jobs strategy. A High Level Group on Reducing Administrative Burdens (the Stoiber group) was established in 2007 to recommend ways to reduce red tape. In its final report delivered in October last year, the Group estimated that that cost of the administrative burden in agriculture was €5.3 billion, and that Commission actions over that period had reduced this cost by €1.9 billion, or by 36%. However, this reduction includes the disappearance of the one-off costs of €1.3 billion associated with the setting-up of the new Single Farm Payment, so the 36% is rather a misleading figure .

    Simplification an objective of the 2013 reform

    Thus, in the run-up to the debate on the CAP 2013 reform, both the Council and Parliament insisted on the need for further strong simplification of the CAP.

    The European Parliament in May 2010 adopted a report on CAP simplification (by a margin of 91% to 8% with 1% abstaining). The Parliament’s resolution “Underlines that further simplification of the CAP is necessary to reduce its implementation costs for EU institutions, Member States and the beneficiaries themselves; in this way, the policy will also become more understandable to farmers and taxpayers” while also emphasising that “simplification should benefit farmers and not only national authorities”. “The objective should be to reduce the implementation costs of the CAP while reducing the administrative burdens on Community producers, to enable farmers to spend more time working their land.”

    Agricultural Ministers also wanted further action. At the Agriculture/Fisheries Council in June 2010, 18 member states circulated a paper in which they insisted that “it is essential that simplification is an integral element of setting the future CAP after 2013, and simplification should therefore be an indispensable aspect of the Commission’s proposals for the CAP after 2013”.

    In November 2010 the Commission put forward its initial proposals for the 2013 CAP reform. It noted that part of its rationale was “to pursue the simplification of the CAP implementation procedures and enhance control requirements and reduce the administrative burden for recipients of funds”. The Commission specifically highlighted the simplified small farmers scheme and simplified cross-compliance measures, but member states were not impressed.

    A paper circulated by the Netherlands to the Agricultural/Fisheries Council in March 2011 and supported by 22 other member states at the time emphasised that “Real regulatory simplicity can only be ensured and maintained by enshrining some overarching principles into the policy-making process”. It proposed a set of six principles for the Commission to follow when coming forward with its legislative proposals for CAP reform.

    • The CAP should be simpler and cheaper for national authorities and imply reduced administrative costs for recipients;
    • A risk-based approach should apply to controls on administrations and recipients;
    • Member States should be accorded discretion and flexibility in programming, defining detailed controls, monitoring and evaluation of schemes;
    • Controls and penalties should be more proportional;
    • Consideration should be given to full transparency and clarity of roles and responsibilities;
    • A better use of technology should be encouraged.

    The European Parliament in its response to the Commission’s November 2010 Communication also stressed “that simplification is fundamental and must be a driving objective of the future CAP, with the costs of administering the policy at Member State level being reduced, and that clear common legal bases are needed, which must be notified promptly and lend themselves to uniform interpretation”.

    When the Commission published its legislative proposals for the 2013 CAP reform in October 2011, they were accompanied by a separate Annex on simplification as part of the impact assessment of those proposals. This built, in part, on an external evaluation of the administrative costs of Pillar 2 schemes which found that “irritation due to administrative procedures plays a big role in the beneficiaries’ feeling of complexity”. It also included recommendations from an ad hoc simplification consultative group consisting of the heads of paying agencies and coordination bodies from all member states as well as farmer representatives. Their views were taken into account as far as possible when preparing the impact assessment, which found that there would be a slight increase in the administrative burden for the Commission’s preferred ‘integration scenario’.

    Agricultural Ministers were appalled that the Commission’s proposals did not sufficiently take into account their wish for simplification. In an attempt to allay their dismay, Commissioner Ciolos defended his proposals in a letter to Ministers and COMAGRI MEPs in November 2011 under the ironic title ‘The CAP reform: simple answers to complex challenges’. The annex to this letter set out a series of ten elements in his proposals which he defended as contributing to simplification.

    Subsequently, a 2012 study by the LEI commissioned by the Dutch and Swedish Agricultural Ministries attempted to assess the extent of simplification for farmers/beneficiaries, national authorities and the European Commission arising from these ten elements. While it noted that different proposals had different implications for different beneficiaries, it concluded that there was little attempt to take account of the Council’s ‘six priniples’ and that, overall, the outcome would be a more complex policy.

    The Council held a further meeting specifically on simplification and reducing red tape in the reform of the CAP under the Danish Presidency in March 2012. Prior to the Council meeting, the Danish Presidency had asked member states to contribute with concrete proposals on how to reduce red tape in the agricultural policy. In response, the Presidency received more than 300 pages of proposals.

    According to the Danish Minister for Food, Agriculture and Fisheries Mette Gjerskov: “The Presidency has three basic goals: To make it easier for the farmers, to make it easier for the authorities – so we do not need to employ more inspection staff – and finally to make the rules more understandable for the farmers and ensuring the authorities are not later overruled by the EU”. The minutes for the Council meeting make clear many member states were not convinced that the proposals represented a step in this direction.

    This brief review of CAP simplification initiatives taken since the mid-1990s underlines four things. First, simplification is a buzzword that all stakeholders can identify with; it is thus politically a relatively costless commitment to make.

    Second, there is nothing particularly novel in Hogan’s declaration that 2015 will be a year of simplification; in pursuing this aim he is following a path well-trodden by previous Commissioners. DG AGRI has had a rolling simplification action plan in place since 2006 which has reduced the administrative burden of the CAP (according to its own estimates, by one-third), yet opportunities for further simplification clearly exist.

    Third, CAP simplification appears to be a Sisyphean task in that each new Commissioner appears condemned to tidy up the initiatives of his or her predecessors. Fourth, despite the overwhelming political consensus that simplification was one of intended objectives of the latest CAP reform, it seems clear that the policy has become even more complex both for farmers and national administrations. If one of the key objectives of the reform was that the future CAP must overall be simpler and cheaper for national authorities to administer, and have reduced administrative costs for recipients (as suggested by the Danish Presidency in March 2012), then the reform has failed on this account. The Commission’s impact assessment foresaw an increase of 15% in administrative costs for the future direct payments system. The LEI study, while also based on the initial proposals and not the final outcome, in its forensic analysis also concluded that the new policy was more complex than the old.

    Against this background, it seems sensible to keep expectations low. Hogan himself has been careful not to oversell what might be achieved even as he tries to build momentum around the issue as one of his ‘grand designs’. However, the question remains, what might be expected from the simplification agenda by the end of this year?

    What Hogan has promised

    Commissioner Hogan has described his simplification ambitions both in his confirmation hearings before the European Parliament in October and in his first address to COMAGRI MEPs in December. At his confirmation hearing, this is what he said:

    If I am confirmed as Commissioner for Agriculture and Rural Development … I would ask my services to carry out a comprehensive screening of Common Agricultural Policy (CAP) legislation to see what can be simplified without putting the effectiveness of the policy and its sound financial management at risk. In addition, I would want the concept of subsidiarity to play a bigger role in the CAP.
    … On the basis of this screening, I would intend to present within the first year of my mandate a simplification and subsidiarity strategy for the CAP which will include concrete initiatives together with a realistic planning for their implementation. It will also describe the way stakeholders will be involved in the process.”
    “Within the first twelve months we will look at the potential for further simplifying direct payments: in particular as regards greening, rural development, quality policy and the fruit and vegetable scheme.”

    “I can already say today that I would see it as a two-step approach with a first step being realised in the near future and a second step focusing on mid-term initiatives. The first step could thus include the following initiatives: after the first year of experience with the reform, a review of whether our policy, notably on direct payments, is designed so that it is being properly applied in practice. Where this is not the case, I will propose to amend our rules with a view to making them simpler and more efficient. This exercise will of course include the arrangement on greening and the Ecological Focus Area (EFA) measure, in line with the commitments made by the outgoing Commission.

    Reviews and, where appropriate, proposals concerning: possibilities for further harmonisation and simplification in the area of geographical indications; the simplification potential with regard to the fruit and vegetable scheme.

    Commissioner Hogan elaborated on this agenda in his address to the COMAGRI MEPs in December:

    While awaiting the results of the screening exercise and the ideas coming from you and from the Member States, I can already see four important areas where our rules can and should be simplified over the next months and years:

    Firstly, I will make sure that any proposal that is on the table delivers in terms of simplification and, where possible, its simplification potential is reinforced in the legislative process.

    Secondly, more than 200 Commission regulations implementing the Common Market Organisation will be revised. This exercise has a significant simplification potential for operators in the agri-food sector, which we should exploit to the fullest extent possible.

    Thirdly, the new direct payments regime. I shall, of course, honour the previous Commission’s commitment to review, after the first year of application, the rules on the Ecological Focus Area. I think, however, that we should not stop there. We should seize the opportunity to also simplify the other rules of the new direct payments regime, provided that we do not re-open the basic policy decisions of the 2013 reform in this area, as democratically negotiated and ratified by you, Honourable Members.

    Fourthly, I want to take a close look at the rules for Geographical Indications. Geographical indications help food producers make more money and keep jobs in the countryside. I want this success to continue and grow; and I want to be sure that the rules we have in place are as effective and simple as possible.

    Hogan has therefore identified at least six policy areas where he sees the potential for further simplification (if we add rural development and fruits and vegetables legislation to the list of four just mentioned), while holding open the possibility that other areas might be added following the consultation process he plans.

    What does simplification involve?

    The LEI study provides a useful definition of simplification. It defines it as:

    a reduction of administrative burden (e.g. complexity, time needed for administration) for farmers and other beneficiaries; a reduction of implementation costs for national authorities/paying agencies, which covers costs for implementation, control, monitoring and evaluation; and a simplification of the work of the European Commission (Rosa and Selnes, 2012).

    The 2005 Commission Communication on Simplification and Better Regulation for the Common Agricultural Policy introduced a distinction between technical and policy simplication.

    Technical simplification     (i.e. within a constant policy framework) implies revision of the legal framework, administrative procedures and management mechanisms to achieve streamlining and greater cost-effectiveness and attain existing policy objectives more effectively, without changing the underlying policies. Examples include revising a legal document to make it clearer, streamlining administrative procedures, or simplifying forms by reducing requests for detailed information in applications. Other examples might be reduced reporting or monitoring requirements.

    Political simplification is about changing underlying policies in ways which make them simpler. This can occur through the abolition of rules and schemes (e.g. abolition of the Energy Crops Scheme in Health Check saved national administrations €61 million according to the 2009 Stoiber Group report; another example would be the elimination of production quotas in dairy and sugar which does away with the need for complex legislation to control supply). It might also occur by exempting certain beneficiaries from obligations under particular schemes (as in the exemptions of small farmers from greening requirements and reduction in cross-compliance obligations, or reducing the list of products for which an import and(or an export licence is required).

    Why simplification is not simple

    It is a truism, repeated by the Commissioner, that simplification is anything but simple. This is the case for a number of reasons. One is that there are various stakeholders involved, and what may be a simplification for one can imply additional burdens for others. For example, it may make life simpler for the Commission if there is a single, uniform scheme across the 28 EU member states, without exceptions and without flexibilities. But this does not necessarily mean a lower administrative burden for national administrations or farmers – the initial proposal to abolish the SAPS scheme in 2014 is a case in point.

    The Commissioner’s plan is, intriguingly, called a simplification and subsidiarity strategy (my italics), suggesting that he sees giving member states greater flexibility in implementing the CAP as a route to lower administrative burdens. Indeed, allowing member states and farmers flexibility to find the most appropriate way to achieve given targets and objectives can lead to simpler and less burdensome regulations, because they are not imposed from outside without regard to local needs and circumstances. But they may also make it more difficult for the Commission to monitor their effectiveness (as the hostile reaction from the environmental NGOs to the proposal that member states could substitute equivalent schemes for the three greening obligations seemed to suggest).

    Good policies should be targeted policies. However, more targeted policies despite their better outcomes often have higher administrative costs as a result of implementing more complex policy designs. Armsworth and colleagues, in a 2012 paper entitled The cost of policy simplification in conservation incentive programs noted that the overall biodiversity benefits (in this paper, measured as the density and species richness of the bird population) of more complex policies were potentially so great that they could justify additional administrative costs of up to 70% of the payments that would otherwise be given to farmers. Does simplification make sense in that context?

    The Commissioner’s agenda would seem to extend to policy simplification as well as technical simplification, particularly in the case of the new system of direct payments. Although he was careful to state that any changes should “not re-open the basic policy decisions of the 2013 reform in this area”, it seems inevitable that policy simplification will be associated with at least a perceived shift in policy focus. This is more likely given that sufficient time will not have elapsed to assemble enough evidence on what is working and what is not.

    Depending on the ambition of the proposals when they see the light of day, we may well see a re-run of some of the battles started in the debate on the 2013 reform, particularly between those seeking to maximise the opportunities for production and those concerned with reinforcing the idea that direct payments should be directed to the production of public goods.

    Overall, a careful reading of the commitments suggests that what we can expect by the end of this year is a new version of the DG AGRI rolling simplification action plan, with perhaps a few specific legislative initiatives where work is well advanced.

    Update 12 January 2015: A letter from 6 Agriculture Ministers sent on 15 December last to Commissioner Hogan setting out a list of issues for simplification of CAP greening can be found here.

    This post was written by Alan Matthews.

    Cartoon credit: www.cartoonstock.com ID bven462 Licence purchased.

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    Phil Hogan confirmed as Commissioner

    Agriculture and Rural Development Commissioner-designate Phil Hogan was strongly confirmed following his hearing before the European Parliament COMAGRI yesterday by 32 votes to 10 on the question whether he is qualified to be a Commissioners, and by 31 votes to 11 on whether he is qualified to take responsibility for his portfolio.
    There were no surprises in either Phil Hogan’s opening statement or in his answers to questions (the DG AGRI website has a copy of his opening statement and a video link to the hearing). I see no reason to revise my previous assessment of the priorities for agricultural policy under Hogan’s mandate.

    There appears to be little appetite for further substantial steps towards a more targeted CAP focused on the delivery of public goods. On the contrary, the specific mandate given to Hogan by the Commission President is to increase the focus of the CAP on “jobs, growth, investment and competitiveness”. This sits well with the expressed views of the Commissioner-designate himself.

    Drawing on his Irish experience, his priority in office will be to encourage growth in agricultural output as a way of creating jobs in rural areas. This does not require any change in the direction of the CAP in a more market-oriented direction (again, coming from Ireland, Hogan is strongly in favour or eliminating milk quotas) but rather ‘simplification’ of the CAP to reduce the administrative burden on farmers.
    The idea that the rationale for public support to farmers is the provision of public goods got short shrift from Hogan. He repeated on many occasions that the purpose of direct payments was to provide a ‘basic income’ to farmers, but avoided directly answering the question from the Irish MEP, Luke Flanagan, who highlighted that most payments go to farmers with incomes well above the average.
    His opening statement seemed to distance himself from greening and its most contentious element Ecological Focus Areas (EFAs), which he described as ‘commitments of the outgoing Commission’, perhaps overlooking that these are now legislative obligations agreed by both Council and Parliament.
    However, when tackled on where he stood on ‘greening’ the CAP during the hearing, he responded that it is far too early to give a judgement on the greening elements in the CAP2013 reform. In response to questions on the three-crop rule and raising the EFA area from 5% to 7%, he cautioned that he would wait until there was evidence on how these measures were working out in practice before coming forward with proposals.
    He was clear that agriculture must be sustainable in the sense that it cannot abuse its dependence on soil and water, and noted that it is good farming practice to have crop rotation, but references to agriculture as a producer of public goods and to the need to reverse the loss of biodiversity were notably absent from his discourse.
    When questioned by MEPs on what he might propose to address specific problems, for example, the future of milk production in disadvantaged areas after the end of quotas, he frequently highlighted that member states now have the measures available to them, under the flexibilities of the CAP, to target particular problem issues. He specifically mentioned that 27 of the 28 member states have decided to introduce coupled payments, for example. I argued in my previous post that this greater flexibility in the name of subsidiarity is likely to mute future demands for changes in CAP regulations, and Commissioner-designate Hogan’s responses support this view.
    There were two new elements with respect to my previous post on a possible timeline for the next CAP reform. One was the commitment to bring forward proposals on simplification of the CAP by the end of his first year in office, so this represents an additional ‘trigger point’ for potential CAP changes. The one example of simplification which he gave was exempting farmers with less than 15 hectares of arable land from the EFA requirements, so this may be a pointer on what to expect in one year’s time.
    The second was the frequent and puzzling reference, both by Commissioner-designate Hogan himself and by MEPs, to a mid-term review of the 2013 CAP reform. No such mid-term review is mandated by the current CAP regulations. Also, it was left unclear when this would occur. It did not seem to refer to the simplification proposals which will emerge at the end of 2015. But whether it means associating a CAP mid-term review with the mid-term review of the MFF due in 2016, or whether the 2017 review of EFAs will be expanded into a more wide-ranging mid-term review, or whether it refers to the monitoring and evaluation report due by the end of 2018 (and which I have argued will really be the basis for the CAP proposals in the next MFF so more an end-term than a mid-term review) was left unclear.
    Overall, Hogan gave a polished, confident and well-prepared performance before the COMAGRI yesterday, but it is clear that agricultural policy will head in a different direction compared to the Ciolos era. The latter, by the way (still the current Commissioner) received nothing but praise from the agricultural ministers at their informal Council in Milan this week, with all agreeing “he was conscientious, always on top of his brief and a pleasure to work with”, according to the AgraFacts newsletter. And a further ‘by the way’, my comment on Ciolos’ performance during his COMAGRI hearing prior to his appointment five years ago is here and is worth re-reading with hindsight.
    Photo credit: EU Audiovisual Services
    This post was written by Alan Matthews.

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    Prospects for the next CAP reform

    The newly-elected MEPS are now finding their feet in Brussels and committee memberships have been assigned. Commission President Juncker has allocated portfolios to the Commissioners nominated by member states, and the European Parliament has scheduled its confirmation hearings beginning next Monday 29 September. The hearing for the Commissioner-designate for Agriculture and Rural Development, Phil Hogan, is scheduled for Thursday 2 October.
    What will the new Commissioner and the new Parliament mean for future CAP reform? With the implementation of the Ciolos CAP reform not even begun, it might seem presumptuous to turn to thinking about the timetable and prospects for the next CAP reform. Nonetheless, in this post, I discuss the likely timeline and speculate on the possible outcome.
    A possible reform timetable?

    A number of possible trigger points are already set. The most important of these is the renegotiation of the EU’s Multi-annual Financial Framework (MFF) for the period after 2020 (the duration of this remains to be decided but must be of at least five years). The schedule for approving the current MFF gives us some idea what to expect.
    For the current MFF, the Commission forwarded its proposal to the Council and Parliament in June 2011. The European Council, having failed to reach agreement at its meeting in November 2012, finally decided on its common position in February 2013. The Council and Parliament reached a preliminary agreement in July 2013. However, the Parliament maintained a reserve on some CAP-related items which were not finally resolved until after a further adjustment in the Council mandate at its meeting in September 2013. The Parliament gave its formal consent to the MFF package on 19 November 2013, and the Council finally adopted the MFF at its meeting in December 2013 which allowed the new MFF to enter into force on 1 January 2014. From start to finish, the process took a total of 30 months, of which 20 months were required for the European Council to reach agreement and the remaining 10 months were required to obtain the consent of the Parliament and complete the legislative process.
    For the post-2020 MFF, the process will start 6 months earlier than the last time. The MFF Regulation requires that “Before 1 January 2018, the Commission shall present a proposal for a new multiannual financial framework”. Assuming a similar 20 months’ time lag, this would suggest agreement on a new MFF by the European Council by July 2019. However, elections to a new European Parliament take place on 23 May 2019, so the Council would be seeking the consent of a newly-elected Parliament which may have different views and priorities to the outgoing Parliament. The negotiations may be further complicated by whether the UK exit from the EU is completed by this date or not.
    We should note that the Parliament got agreement on a ‘revision clause’ in the current MFF whereby the Commission will present a review of the functioning of the MFF towards the end of 2016, taking full account of the economic situation at that time. The Commission has declared that this review will focus mainly on the functioning of the global margin for payments in order to ensure that the overall payments ceiling remains available throughout the period and on the particular requirements of the Horizon 2020 programme.
    It has also agreed to examine aligning its proposals for the next MFF with the political cycles of the Institutions. As the next Parliament will give the final consent on the next MFF at the beginning of its period of office, any Commission proposal is more likely to address the duration of future MFFs rather than alter the timetable for agreement on the next MFF.
    In his political guidelines for the next Commission presented to the Parliament last July, Commission President Juncker seemed to go further by stating that “The mid-term review of the Multiannual Financial Framework … should be used to orient the EU budget further towards jobs, growth and competitiveness.” In his mandate to the new Agriculture Commissioner, he specifically identified as one of his tasks “Contributing to the 2016 review of the Multiannual Financial Framework by identifying ways of further increasing the focus of the CAP on jobs, growth, investment and competitiveness.”
    The mid-term MFF review could thus provide an opportunity to review the new CAP regulations although it is hard to see that it would become an occasion to revisit the 2013 CAP reform.
    The CAP and the next MFF

    For the CAP, the size of its allocation in the post-2020 MFF will be crucial. The CAP’s share in the overall EU budget has been declining (the share of Heading 2 in MFF commitment appropriations which covers the CAP but also small amounts for fisheries and LIFE+ will fall from 44.3% in 2007 to 36.1% in 2020) but it remains the second largest expenditure item after cohesion policy.
    If, as we must assume, member states will want to continue to hold a tight rein on the overall size of the MFF in the next period, will the Commission seek to find additional resources for competitiveness and infrastructure projects by cutting back on the CAP budget more strongly (as recommended in the leaked but discarded first draft of the Commission’s mandated budget review half way through the 2007-2014 MFF)? How will the new Agriculture Commissioner seek to defend the existing share of the CAP in the EU budget, as one assumes he will? (on the role of the Commissioner, see further below).
    The MFF is not just an accounting exercise but also sets out the Union’s political priorities for the coming period. It was in its June 2011 MFF communication, for example, that the Commission first set out its overall objectives for CAP reform in the coming period. This communication was the first to specify the Commission’s proposed greening of direct payments, the convergence of direct payments, capping, changes to rural development programming and reforms in market support. These were then elaborated when the Commission’s draft CAP regulations were published later that year in October 2011.
    We would expect, therefore, that the Commission would follow up on its MFF communication towards the end of 2017 with a proposal at least for a new rural development regulation given that the current programming period expires at the end of 2020. Whether the Commission proposes, in addition, radical changes in the direct payments and market support regulations will depend on the Commission’s, and the Commissioner’s, appetite for further CAP reform. For the reasons outlined below, I am not holding my breath in that regard.
    Note that, for the same reasons of the parliamentary cycle, the current Parliament will not be involved in concluding the co-decision process on revised CAP regulations as part of an MFF package. This Parliament will have dissolved before the negotiations seriously get underway.
    Before addressing the political economy of further CAP reform, we should note two other possible trigger points for Commission initiatives. The first is the requirement, in the 2013 direct payments regulation, for the Commission to present an evaluation on the implementation of the new ecological focus areas by 31 March 2017 accompanied, where appropriate, by a proposal for a legislative act to increase the arable area covered by EFAs from 5% to 7%. While this appears to be a narrow mandate, an activist Commissioner could use this opportunity to also re-open other aspects of the implementation of CAP greening.
    Another possible trigger point is contained in the new horizontal regulation which requires the Commission, as part of the extended common monitoring and evaluation of CAP policy instruments, to present an initial report on the performance of the CAP by 31 December 2018 and a second report by 31 December 2021. Given the MFF timetable described above, it would seem plausible that the first performance monitoring report would be wrapped into the process of presenting the CAP budget in the next MFF and possible revisions in the accompanying CAP regulations.
    What is meant by CAP reform?
    Will those draft CAP regulations constitute a proposal for the ‘Hogan reform’ of the CAP? Below, I consider the political economy arguments which point to limited rather than radical change in the next set of CAP proposals. But it is possible that this discussion could get very mixed up because people have very different interpretations of what they mean by ‘reform’. Reform means change, but change is, in itself, an ambivalent term. Here, I highlight two dimensions of change: the distinction between ‘grand reforms’ and ‘fine-tuning’, and the direction of reform.
    The mandate given to the Commissioner-designate for Agriculture and Rural Development by Commission President Juncker on his appointment emphasises implementation of the recent CAP reform, further simplification and prudent management of financial resources as his key tasks. There is no suggestion here that the CAP budget in the next MFF will be under threat unless there is a radical restructuring of the way the money is spent. Juncker has too many other battles on this hands to want to start on the CAP, which did not warrant a mention in his political statement to the Parliament.
    This does not mean that the new Commissioner will not have a busy programme of CAP legislation in his period of office. An EP briefing to prepare COMAGRI MEPs for the confirmation hearings next week lists some of the dossiers he must address. Implementing the newly-reformed CAP includes some specific challenges, such as the adaptation of the dairy sector to the end of quota system, answering recent strong criticisms from the EU Court of Auditors on EU financial support for the wine sector, and addressing the current crisis resulting from the Russian ban on imports of EU farm products.
    Other priorities include international negotiations covering agricultural goods, such as those relating to the Transatlantic Trade and Investment Partnership (TTIP) or within the WTO as well as policies on cultivation and use of genetically modified organisms and on the use of hormones or cloning in animal farming. Further, if it turns out that instruments in the new CAP are insufficient to address some emerging or unexpected problems, one would expect the Commission to respond by proposing new legislation.
    Arguably, however, all of these issues amount to ‘fine-tuning’ of the CAP rather than adding up to a ‘grand reform’. While it may be hard to draw the distinction, ‘grand reforms’ in the past have significantly altered the balance of the two CAP pillars, changed the design and the distribution of direct payments, introduced new policy objectives for the CAP, or modified the degree of public intervention in agricultural markets. Nothing in the President’s mandate or the Parliament’s proposed agenda for the new Commissioner hints at changes of this kind.
    What direction of reform?

    The second definitional issue concerns the content of any future ‘grand reforms’. Reform is a value-laden term that positively denotes significant change in line with the observer’s preferences. But one person’s reform may be another person’s regress, as evidenced by the debate whether it is appropriate to describe the 2013 CAP package as a ‘reform’ or not.
    Until the Ciolos CAP package, there had been a certain logic to the trajectory of CAP reform towards what economists consider less distorting and more market-oriented policy instruments. The MacSharry and Agenda 2000 reforms replaced market price support with coupled direct payments, while the Fischler 2003 reform and the Fischer Boel Health Check replaced coupled by decoupled payments and set a date for the final elimination of supply controls on milk, sugar and vineyard areas.
    From this perspective, a true reform in 2013 would have followed the advice of the OECD Agriculture Ministers in 2010 and moved from untargeted decoupled direct payments (which can only be justified as an interim, transitional measure) to targeted transfers designed to achieve specific objectives. This is the definition of ‘reform’ used on this blog.
    The Ciolos reform made some moves towards greater targeting (it might be better to call it differentiation) of direct payments while also distributing them more evenly across member states and farmers. It confirmed the elimination of supply management for milk and sugar and introduced measures to give producers greater bargaining power in the supply chain. It paid greater attention to increasing the competitiveness of EU agriculture, through new measures and greater resources for innovation and limiting the future use of export subsidies.
    It responded to calls for greater subsidiarity by providing greatly increased flexibility to member states on how they want to implement the CAP, albeit at some risk to the cohesion of the single market. It also avoided responding to calls which would have reversed the reform process to date, such as introducing price-dependent counter-cyclical direct payments or significantly raising safety net intervention prices.
    However, the 2013 CAP package also enlarged the scope for re-coupling of direct payments, did not forbid the use of export subsidies, and maintained expenditure on largely untargeted direct payments at the expense of Pillar 2 funding. Also, the greening proposals adopted have been heavily criticised as yielding very limited benefits for the environment due to the shallow nature of the measures and the large number of exempted farmers, despite the allocation of 30% of the direct payments budget as a ‘green payment’.
    Not surprisingly, environmental NGOs (eNGOs) are among those most anxious to push for an early new initiative on CAP reform, hoping to reverse some of the damage inflicted by Council and Parliament amendments to the Commission proposals and to build on the bridgehead represented by the green payment. Whether their demands will fall into the category of ‘fine tuning’ or will seek a more radical re-envisioning of the CAP remains to be seen.
    At the same time, if farm prices fall (perhaps as a result of slowing global trade) and margins come under pressure, the Commissioner will face calls to raise intervention prices, to reintroduce export subsidies, to propose a voluntary buy-out scheme in the dairy sector and to move back towards a more regulated market.
    Thus, an important issue for the incoming Commissioner’s term in office is not only whether he will propose a ‘grand reform’ but what direction would it take? Answering these questions requires an understanding of the political economy around another CAP reform.

    The political economy of further CAP reform
    The political economy of a further CAP reform depends, in the first instance, on the actors directly involved – Commissioner, Council and Parliament – and the external forces to which they must respond.
    The Commissioner. The first variable in the equation is the new Commissioner, on the reasonable assumption that he is confirmed following the hearings next week. We will know more about Hogan’s intentions following his answers to the Parliamentary questionning, but his first interview given to the Irish Farmers Journal following his appointment as Commissioner-designate makes clear that his first priority will be to continue support for production agriculture.

    I will continue to emphasise the importance of food production in my new role. Europe has a massive responsibility to feed itself, and to produce food for those starving populations unable to meet their demand for food production.

    As evidence of his commitment, he noted that, as Environment Minister in Ireland, he had highlighted “the need to balance climate change mitigation measures with the need to feed the planet”.
    Specifically, on the possibility of a mid-term review of the 2013 CAP reform, Hogan had this to say:

    Its not good for market certainty for farmers to have too many changes in quick succession. We have been bedevilled a bit by that over the last 20 years. I think now is an opportunity for some stability.

    Taken together with the limited mandate for reform in Juncker’s letter of appointment, it does not appear as if the new Commission is about to propose a major shift in CAP spending priorities.
    The Council. This view is undoubtedly shared by the member states which still have to make ready to implement the 2013 reform from next year, which are appalled by the additional complexity and fearful of the prospect of payment disallowances if they get it wrong. The reformist camp, always a minority, had anyway lost some of its momentum and cohesion during the 2013 CAP negotiations (the Dutch keeping quiet, the UK otherwise preoccupied).
    A more important influence on the zeal for further reform is the long-run impact of the greater flexibility that member states now have to implement the CAP. Member states which wish to move the CAP in a more targeted direction to focus on public goods now have considerable scope to do that within the current CAP framework, even if the same flexibility allows other member states to move in the opposite direction. Why waste political capital advocating for further CAP reform when the possibilities are already in your own hands?
    The Parliament. I have argued above that the current Parliament will not play a significant role in deciding the outcome of any Commission proposal on the CAP accompanying its next draft MFF regulation. As I also do not foresee any major CAP initiative as part of the 2016 mid-term review of the MFF, the current Parliament’s influence will be confined to deciding on its response to the Commission’s EFA report and accompanying legislative proposal expected in early 2017.
    The nature of the Parliament’s response will be influenced by the committee to which it allocates the dossier. As any legislative proposal would involve an amendment to a CAP regulation, the Parliament might be expected to give the dossier to COMAGRI. On the other hand, the issue is clearly an environmental once and COMENVI would have a good case to be the lead committee or at least co-responsible with COMAGRI. The greater the involvement of COMENVI, the more likely that the Parliament’s position would be favourable to further greening of the CAP.
    External forces influencing the next CAP
    The 2013 CAP reform was clearly influenced by external events, in particular the high and volatile prices on global food markets which changed the terms of the debate on the future CAP by elevating the ‘food security’ argument at the expense of the ‘public goods’ one. Unexpected external events could also be important in shaping the Commission’s next CAP proposals.
    The WTO, an important influence on earlier CAP reforms, is not a significant driver of further reform even if the Doha Round unexpectedly returned to life, although the CAP remains vulnerable to a challenge regarding the Green Box status of the single payment. Global food prices are forecast to remain at historically high levels, but also to be more volatile, which will continue to feed into the ‘food security’ narrative for more support for EU farmers.
    The EU’s next energy and climate package now being negotiated will impact on agriculture in various ways, including the support given to agriculture-based biofuels, the way emissions from land use and land use change are addressed and the scale of the demands on agriculture to limit emissions (this latter is more of an issue for individual member states than for the EU as a whole).
    Also, biodiversity loss, water pollution, soil erosion and resource waste and inefficiency will continue to play a role in setting the agricultural policy agenda but the new Commission may well argue that these are matters where member states, in the first instance, must respond making use of the instruments that are already available.
    Finally, the state of the EU economy towards the end of the decade will influence the overall resources available for the next EU budget. This, in turn, will shape the pressures on the share of the CAP budget in the next MFF.
    What are the prospects for the next CAP reform?
    Against this background, what are the prospects for the next CAP reform? Some optimists in the eNGOs see a possibility already for a mid-term review to review the greening measures, not only moving to the 7% figure for EFAs but also extending obligations to more farmers and even introducing additional measures. I see no political appetite for such an initiative.
    Also, although it will be possible to measure the impact of EFAs on land use and agricultural production during their first two years of operation by early 2017 when the Commission is due to report, measuring their environmental impacts (or lack of them) is going to take much longer. Indeed, the extension of EFAs to 7% of arable land in 2017 should not be taken for granted and could well be postponed to the next revision of the CAP regulations in connection with the MFF.
    The Commission will first make proposals to revise the CAP regulations as part of the MFF negotiations in 2018. The current Parliament will barely have time to read the documents before it is dissolved in March 2019. One of the lessons from the recent CAP reform was that the Parliament was unwilling to engage in trilogues with the Council until it knew the outcome of the MFF figures for the CAP. I have argued in this working paper that this position greatly helped the more status quo-oriented voices in that debate and weakened the position of those pushing for a stronger focus on greening the CAP.
    We should assume that the Parliament will adopt the same position in the next set of negotiations as the same arguments would apply. Assuming that the European Council’s MFF figures are known by late 2019 or early 2020, the new Parliament could be in a position to agree on the new CAP regulations through co-decision in the course of 2020.
    The current evidence suggests that these new CAP regulations will largely roll-over the existing rules, perhaps tweaking the external convergence formula under pressure from the new member states and making other minor changes. There appears to be little appetite for further substantial steps towards a more targeted CAP focused on the delivery of public goods. On the contrary, the specific mandate given to Hogan by the Commission President is to increase the focus of the CAP on “jobs, growth, investment and competitiveness”. This sits well with the expressed views of the Commissioner-designate himself.
    But there are still four years to go before the Commission makes its proposals, and a lot can happen in that time!
    Photo credit: Irish Independent
    This post was written by Alan Matthews. The post was updated on 27 Nov 2016 to highlight the implications of Brexit on the timing of the next MFF.