The value of SFP payment entitlements (and the SAPS payment in the new member states) that farmers will receive later this year will be based on current eligibility rules (as set out in Council Regulation (EC) 73/2009 agreed following the CAP Health Check) but on the budgetary amounts set aside for 2014 under the new Multiannual Financial Framework (MFF) regulation for the coming period 2014-2020. This is because the 2013 direct payments are paid out of the 2014 EU budget which runs from 1 October this year.
This means that, even without the new CAP regulations agreed in June 2013 coming into force (which are now delayed to 1 January 2015), what farmers will receive in direct payments in 2013 will differ from what they were paid in 2012 for two main reasons:
• The overall budget for direct payments agreed for 2014, taking into account the additional demands on this budget arising from the phasing in direct payments in the new member states plus the provision for the new crisis reserve, is lower than before.… Read the rest
CAP reform implementation consultations begin
The most defining characteristic of the political agreement reached on CAP reform in June 2013 in hindsight may not be the greening of Pillar 1 payments or the move towards greater ‘fairness’ in the CAP as a result of external and internal convergence, but rather the re-nationalisation of some aspects of agricultural policy with the devolution of much greater flexibility to member states in how the new CAP can be implemented.
This flexibility may be seen as a consequence of trying to manage a single CAP in an increasingly heterogeneous agricultural landscape in Europe following successive enlargements to an EU of 28 member countries. Or it might be seen as the price of reaching agreement on a complex political package in which each member state had particular political interests to defend, leading to a self-service menu of CAP reform options.
Flexibility in implementing the CAP can be a desirable feature if it results in a better alignment of agricultural policy with the needs of individual countries and regions – this has been the traditional argument behind the menu approach which is now a well-established feature of Pillar 2.… Read the rest
CAP reform uncertainty and the market for entitlements
One little-emphasised feature of the current negotiations on CAP reform is that the rules for eligibility for payments under the new basic payment scheme (and thus also the other proposed layers of Pillar 1 direct payments such as the green payment, young farmer’s payment, area of natural constraints payment and redistributive payment where these are adopted) are in a state of flux. New amendments and modifications continue to be introduced at successive stages of the negotiation process. This uncertainty is reflected in the market for Single Farm Payment (SFP) entitlements and the prices farmers are willing to pay for entitlements where they become available.
The Commission’s original proposal was that farmers would receive entitlements based on the number of eligible hectares declared in 2014 (Article 21 of the direct payment regulation). I have previously discussed how the requirement for an eligible farmer to have received a payment (and thus have activated at least one entitlement) in 2011 was introduced into the Commission’s October 2011 proposals at the last minute.… Read the rest
Production effects of moving to flatter structure of direct payments
What might be the production, consumption and trade effects of the Commission’s proposals to redistribute direct payments by moving to a flat(ter) structure of direct payments across the Member States, and to redistribute payments within Member States by moving from the historic basis of farm payments (in the majority of Member States which operate this system) to a regional flat rate system?
A silly question, some might respond, for are not the EU’s direct payments decoupled (leaving aside the continued existence of a share of coupled payments) and thus not meant to have an effect on farm production? If a direct payment is truly decoupled, then moving payments from one farm to another, or from one country to another, will affect relative incomes but not output.
But there is widespread agreement that even decoupled direct payments do have an effect on production, even if there is less agreement on how strong this effect is in practice.… Read the rest
Updating the base period for SPS entitlements
One of the more significant changes proposed by the Commission in its draft legislative proposal on direct payments is to eliminate those existing entitlements to support which farmers have built up in the past. The basic payment scheme will replace the Single Payment Scheme and the Single Area Payment Scheme as from 2014. The new scheme will operate on the basis of payment entitlements allocated at national or regional level to all farmers according to their eligible hectares in the first year of application.
The proposal to allocate new entitlements on the basis of land farmed in 2014 has provoked a massive protest in Ireland (see, for example, this Irish Examiner story). It is alleged that, in an attempt to build up their claim to entitlements in 2014, farmers are taking back land which is currently leased out, thus creating massive disruption in the land rental market and discriminating against those farmers who are actively farming the land.… Read the rest
What is the likely cost of greening Pillar 1?
The Commission’s proposals for the design of direct payments after 2013 include a greening component which, according to the draft legislative proposal (yet to be released on 12 October next and thus subject to change) will be mandatory for farmers in receipt of the basic income payment – thus becoming what I called in an earlier post a form of super-cross-conditionality.
In the impact assessment to be released with the legislative proposal the Commission has made some estimates of the cost of implementing these green measures. In this post, I examine these costs using information in the draft version of the impact assessment (Annex 12 Impact of Scenarios on the Distribution of Direct Payments and Farm Income).
This version was completed before June 2011 and the favoured proposal in the draft regulation now differs somewhat from the version examined in June. In particular, the obligation to maintain a green cover during winter has been dropped, but on the other hand the area to be setaside under the ecological focus requirement has been increased from 5% to 7% (see this post for a summary of the draft direct payments regulation).… Read the rest
The worst case scenario examined
A new study from the University of Wageningen in the Netherlands has attempted to model the effects of the abolition of EU farm subsidies. The authors of the report state that their study is very much a ‘worst case assessment’ since,
“It does not take into account farmers’ behaviour, although the past has shown that farmers do adapt to changes in the Common Agricultural Policy. It also assumes a fixed cost structure and abstracts from changes in factor prices and structural change, all elements which would reduce the impact of reform on farm incomes.”
The report makes it clear that the effect of subsidies – and their removal – is not felt evenly across Europe. In countries such as the Netherlands, Italy and Belgium the share of farm subsidies in total agricultural output is below or around 10%, in Austria and Slovenia above 30%, in Ireland around 50% and in Finland even above 60%.… Read the rest
The future of direct payments
As Valentin’s blog post yesterday explains, the CAP is not only a European agriculture policy, it’s a European income redistribution policy. The centrepiece of the CAP is the €42 billion a year in ‘direct aids’ or income support to farmers, funded entirely from the pooled EU budget. Valentin points out that in an era of fiscal austerity, the idea of billions of euros moving from one country’s taxpayers to another country’s farmers is likely to be politically controversial. Particularly when the biggest payouts go to Europe’s wealthiest citizens and most profitable companies.
As national governments decide by how much they are going to pay of nurses and school teachers, how many university places they will cut and which taxes they are going to have to increase, the idea that aids to farmers are ringfenced from cuts will come as a surprise to many. But this is exactly what European leaders agreed to in 2002, in a deal devised by Jacques Chirac and Gerhard Schroeder that fixed the CAP’s direct aids budget at a constant level until the end of 2013.… Read the rest
CAP Reform Conversations: Paolo De Castro MEP
In the first of a series of video conversations with leading figures in the debate over the future of the CAP, Jack Thurston talks to Paolo De Castro MEP, chair of the parliament’s Committee on Agriculture and Rural Development and a former two-term Italian agriculture minister and professor of agricultural economics.
De Castro explains that he has always regarded himself as a CAP reformer and sets out his vision for a reshaping of the EU’s farm subsidy system. He advocates a shift to a basic flat rate aid payment to farmers, plus additional funds to be allocated at the discretion of member states. He argues for introducing minimum and maximum thresholds for payments (a minimum around 300 euro and a maximum in the range 400,000-500,000 euro). He speaks in favour of co-financing of the CAP, so long as it’s not optional for member states. He explains his vision for the European Parliament’s role under the new Lisbon Treaty rules, including his idea of a permanent seat for the Agriculture Committee on the Agriculture Council and how he’d like COMAGRI to take part in CAP comitology.… Read the rest
German call for reform of CAP payments
The German Council for Sustainable Development has just published a report highlighting the environmental damage caused by intensive agriculture and calling for a reform of the CAP direct payments system. It proposes a three-fold structure of payments: an environmental basic payment, a series of targeted agri-environmental payments for farmers who accept higher obligations, and a series of payments for high nature-value areas where the continuation of agricultural production is desirable but threatened on economic grounds.
For the environmental basic payment, it suggests that eligibility would be conditional on farmers turning over at least 10% of their area to environmentally-friendly husbandry with a view to maintaining a high level of biodiversity in the agricultural landscape throughout the EU.
The Council explicitly argues against the idea that farmers should be remunerated for fulfilling their statutory obligations with respect to the environment, animal welfare and food safety (cross compliance). It also justifies full EU financing of most of the payments “so long as these are directed to fulfilling EU objectives”, thus apparently advocating that some of the existing co-financed agri-environmental payments in Pillar 2 might be moved to Pillar 1 at least as far as financing modalities are concerned.… Read the rest