According to the latest proposals of the European Commission, the amount of support from the basic payment scheme received per farm would be limited to €300,000 per year. Payments higher than €150,000 will be subject to progressive reductions but the costs of salaries in the previous year can be deducted before these reductions apply.
Several critiques appear regarding capping. As recognised by many, it would further weaken the anyway decreasing competitiveness of European large farms by creating a discriminative instrument in the provision of direct payments. It is also contradictory to the economies of scale (and efficiency) as well as would significantly increase bureaucracy, which is totally against the ‘cutting the red-tape’ principle of the Commission. Moreover, it might also result in a splitting of farms, which would have serious consequences to the European agricultural sector and would not be ethically fair either. Another rather theoretical reasoning state that direct payments serve as a remuneration for the production of public goods, produced on small farms and large farms alike, meaning that capping is against the equal production of public goods. Furthermore, large farms can find many ways of evading capping (e.g. splitting, employment tricks, etc.).
However, as the other side of the coin suggests, it would help defending the public image of the CAP in the eyes of European taxpayers stating that large farms do not need any further help. It would also enable further targeting of direct payments and decrease the currently inefficient distribution of these payments. It would also slightly assist in job creation if large farms want to avoid capping and would have some beneficial effects in ‘whitening’ national labour markets.
Apart from all these pros and cons, one should clearly see that according to the Impact Assessment of the EC, we are talking about an €278 million to € 835 million issue here for the whole EU27. This represents 1-2% of the total amount of direct payments at EU level which is relatively low when compared to the current amount resulting from modulation (around €3 billions for 2013). The logical question comes: who cares capping at all?
This question might generate two different actions. On the one hand, one may conclude that we should get rid of this idea as it has no significant effects for the future. On the other hand, decision makers might conclude that it should be introduced anyway as it has no major effects and therefore does not harm anyone seriously but would serve as a good tool to sell the CAP in a new dress. In times of weak reforms, the latter argument seems very much plausible.
This post was written by Attila Jambor.