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Backgrounder: Update on the CAP

  • October 29th, 2006
  • Posted by 7thmin

country-scene.jpgBackgrounder: Update on the CAP

(This is a background paper on the Common Agricultural Policy (CAP) of the European Union. Read this backgrounder at EuAustralia.com, Features – Investigations …)

The Common Agricultural Policy (CAP) is in its second edition; it may go into a third incarnation after 2013, when eventually it is to be subject to a general budget constraint, related to inflation.

First edition

The historian Tony Judt gives a recent, to-the-point, standard treatment of the origins of the CAP, as an outgrowth of sudden expansion of agricultural capacity in Europe during recovery from the Second World War.

Agricultural expansion had become a core element in political negotiations that produced the 1957 Treaty of Rome, foundation of the European Union; its own expression was the CAP, established during the period 1962-70.

France would be a leading example of the agricultural impetus: “France’s chief economic interest in a European common market was the preferential access it would afford to foreign – especially German (or British)- markets for meat, dairy and grain products. This together with the promise of continued price supports … was what convinced the National Assembly to vote for the Rome Treaty.

“This is the background to the EEC’s notorious Common Agricultural Policy (CAP) … As fixed European prices rose, all of Europe’s food production became too expensive to compete on the world market … Each year, the EEC would henceforth buy all its members’ surplus agricultural output, at figures 5-7 percent below the ‘target’ prices. It would then clear the surplus by subsidising its re-sale outside the Common Market at below-EU prices. This manifestly inefficient proceeding was the result of some very old-fashioned horse-trading … Modern agriculture has never been free of politically motivated protections of one kind or another …”

By the late 1960s the system had grown out of hand, absorbing 70 percent of EEC budgets, employing 80 percent of EEC administrative staff, and as world food prices fell, EEC processes were “stranded at absurdly high levels.” (Judt, 2005, 305-7) In the meantime the coupling of assistance to production meant that growth of farm output became relentless, not to be stemmed unless at the cost of compensatory aid.

By 1991 the CAP budget had pushed past the EU 30-billion mark (A$49.75-billion; Decrates 27.10.06). A change was forced; by pressure from international competitors demanding the “level playing field”; taxpayer resistance in Europe itself, and the expensive internal contradictions of the system – not least in the context of growing policy focus on the “market” in an integrated world economy.

The problem of surpluses was recurrent; projections were being made that cereals stocks reaching 30-million tonnes in 1998 would then more than double in the following seven years.

Second edition

Notwithstanding rear-guard actions fought, (still being fought), on behalf of the CAP, in the theatre of a diversifying, diffusing world trade system, (e.g. a stand-off between “Cairns Group” partners and the EC, at the 1990 GATT Ministerial conference, in Brussels); Europe has itself initiated a partial retreat from its most-criticised practices – non-tariff protection for export production.

The solution of the last fifteen years has become, to withdraw market (price) supports tied to production and export subsidies, with their demonstrated potential for trade distortion, in favour of direct payments and a set of subsidiary benefits for rural development.

However it was made up, the budget itself yet continued to increase, pushing towards EU 45-million ($A76.6-billion) in 2002; it has been feeling effects of general EU budget contractions more recently.

Features of the old system remain: set-aside provisions for paying to take land out of market production, retained as a key production management tool ; quota arrangements; exceptions contained in a labyrinth of negotiated provisions and enduring regulations.

Milestones of the change process:

1992 Reform regulations implementing a support system for certain arable crops, reducing price support..

2000 Inauguration by national Heads of Government at the European Council, at Lisbon, of the “Lisbon Strategy”, a policy framework for the EU prescribing change. It set goals of industrial competitiveness in a globalised economy; to be achieved through mobilisation of resources, e.g. through massive research investments, and concerted development of human resources, via education – as engines for environmentally sustainable high growth and high employment.

2001/2003 Establishment of guiding principles of competitiveness and sustainability for the CAP, within the “Lisbon” framework, (Councils at Goteborg and Thessaloniki).

2003 / 2004 Reform of the CAP. Under the “new” CAP the vast majority of subsidies would be paid independently from volume of production. To “avoid abandonment of production”, Member States were enabled to continue certain links between subsidy and production, within clear limits. The new form of support, “single farm payments” would be linked to environmental, food safety and animal welfare performance standards and reporting. A regimen of financial discipline was endorsed.

The second-edition system contains a dynamic for continual adjustment; since the old dynamic of production-related payments has been forfeited, the possibility now exists to cut back on payments; and the prospective budget tightening of 2013 has signaled a demand for thorough-going rationalisation and reform. The system has to be more on-its-toes.
Consolidation and preparation

The current phase of change in the Common Agricultural Policy involves consolidation of earlier reforms and preparatory work for potentially a leaner system after 2013.

Features:

The current Commissioner for Agriculture and Rural Development, Mariann Fischer Boel, on 3.10.06 outlined a program for the coming seven years:

• Sectoral reforms, like new systems already set up for sugar and or under discussion for wine, bananas and fruit and vegetables.
• A detailed review of the CAP aimed at reformative change, described as a “health check” on the CAP, in 2008.
• Agriculture’s place in the coming general review of the whole European Union budget. This was planned for “sometime around 2009”, and would include “reflections on the CAP’s longer-term future beyond 2013”.

Simplification of the CAP

Structural changes are already in train to “simplify” the CAP in line with the quality and performance standards, for competitiveness and business efficiency proclaimed in the Lisbon Strategy:

Work is forthcoming on the consolidation of the 21 Common Marketing Organisations (CMOs) in the agricultural sectors, into a single CMO; and also on a declared Action Plan currently containing twenty proposals for administrative change.

• A single CMO

One Common Marketing Organisation (CMO) for all the agricultural sectors, established within one clear legal document, will replace the present 21 CMOs. As a consolidation it will not replace any existing market instruments or add new ones. The Commissioner was planning to table a proposal for creating the single CMO by December 2006.

• Action Plan

Twenty proposals have been put forward to simplify processes for rural producers, businesses and governments. (The Commissioner provided an example with olive oil production, suggesting a bar on farmers using trees planted after 1998, to obtain support not coupled to production, had become redundant. Similarly, decoupling had removed the need for farmers to keep on meeting listed conditions when producing for dried fodder).

Presently initiatives linked to the objective of simplification are diverse and can occur at different levels. In a recent example (17.10.06), the European Commission proposed a simplification of exemption procedures for certain types of state aid. This would excuse beneficiaries from fulfilling advanced notification procedures for projects to do with culture, heritage conservation and damage from natural disasters. An additional category was provided for certain social aid, and “more targeted arrangements for the production, processing and marketing of agricultural products”. The change was described as affecting mostly low budget projects, and while it would duplicate existing exceptions for small and medium enterprises, large undertakings dealing with small projects would henceforth be included.

Agriculture is represented in EC communications as a leading part of the simplification process as it is the “source of the biggest share of legislation and rules” within the European Union, (CAP Reform: Commission steps up efforts to simplify the Common Agricultural Policy; http://europa.eu/rapid/pressReleasesAction.do?reference=IP/06/129 – 28.10.06).

• Single Payments scheme

Further development of the Single Payments scheme, the consolidated payments arrangement introduced as part of the reform of the CAP in 2003, for processing direct payments under the decoupling of assistance from production. Some 90% of direct assistance payments are now provided under this scheme.

Senior officials have indicated the change process under way would see additional pressure to fully remove continuing quotas, set-asides and exceptions.

• Rural Development

A Rural Development package has been set up under a Regulation, with a projected budget of EU 88.75-billion (A$147.17), administered as a single fund, for an inaugural six-year period, 2007 to 2013.

It has enjoyed some priority, being favoured by managers as a good fit with the Lisbon Strategy, given an emphasis on developing resources to boost productivity and competitiveness.

Project work related to agriculture, food and forestry is to be committed to modernising farm holdings and improving farming infrastructure; objectives will include sustainability and innovation.

Regional schemes are expected to dovetail with large-scale undertakings already supported by the European Union; in the promotional language: “Rural development actions can ensure that small-scale local infrastructure is put in place to connect rural communities with major investments under regional and cohesion policies. The significant EU structural funds invested in telecommunications, transport, energy and water infrastructure can be capitalised on via local strategies for diversification and development of agriculture and food sector potential. Rural development can help supply the multiplier effect.” (http:ec.europa.eu/agriculture/Lisbon/index_en.htm – 27.10.06)

Notwithstanding a definite focus on farm businesses, current thinking in this area appears to promise a subsidised partial makeover of the rural and regional landscape generally, including as it does support for non-farm heritage projects, tourism or educational facilities in small towns.

• New assistance projects

New forms of assistance are found under the “Lisbon” objectives of assisting with adaptation to more market-based structures, enhanced risk management, development of micro-businesses and entrepreneurship, take-up of information technology, and far more research and development activity.

Leader. A project associated with Rural Development, called Leader, provides examples of micro-projects in the pipeline, e.g. certain ones operating with grants of EU 40-94.000 (A$ 66.330 – 155.880): a group in Germany working with mass media use at village level; tailoring of jobs to the disabled in a Spanish town, and a program for cultural appreciation of rural wine-making; running a small tourist train in Greece; design and production work on shutters needed for log-constructed buildings in Finland, not available commercially; a local cultural and sporting program for youth in France. (http://ec.europa.eu/agriculture/rur/leaderplus/index_en.htm – 28.10.06)

Precision farming. Among farm projects; a drive for “precision farming” will involve training, and can include management of designated environmental sites, with demonstration effects, and other economic implications such as tourism development.

Energy crops assistance. Advancement of a program to encourage production of energy crops will see farmers offered EU 45 (A$ 74.62) per hectare for crops produced as biomass. As such it would take in corn, grasses or suitable trees usable in biofuels production, e.g. for bioethanol, biodiesel.

Third edition

Simplified and ready access to ongoing support not related to output is held up as a key to efficiency, inventiveness and competitiveness in the new Century. Will these evolved forms of activity, much of it small scale, actually assuage and displace ingrained dependency on centrally-disbursed, comprehensive, almost automatic and ever-expanding assistance – on an enormous industrial scale? Does inventiveness and initiative compare at all with embedded traditions of on-farm production on the one hand and political lever-pulling on the other?

To the point, will agriculture budgets continue in their present range, nudging towards EU 50-billion p.a. (A$82.9-billion)? The structure of change since 1991 has seen a transfer of the money, away from the old categories of export subsidies and market support linked to production, towards uncoupled direct assistance and the rather lesser item of Rural Development.

After ten years the former two categories were already reduced to about 25% of budget. Negotiation of future budgets, without the implied triggering mechanism of funding in response to output, may become a tougher, more discretionary process. It might be indicative that already, as the Agriculture Commissioner has informed journalists (4.10.06), the EU 88.75-billion (A$147.17) agreed to for Rural Development is actually EU 20-billion (A$33.167-billion) short of the total sought by the project’s architects and supporters in internal negotiations.

More than an afterthought in these considerations, consulting the public, has moved to a central place in future decision-making on agriculture in Europe. Public concern with the costs to taxpayers and consumers of the CAP was matched with disinterest in the bureaucratic model for a unified continent. Defeat of the 2005 referenda proposals for a new EU constitution has been seen as wake-up call in many quarters for more thorough public engagement in the European project. The European Commission attempts to keep pace with public opinion and responses to its initiatives through extensive polling, for its Eurobarometer dossiers. Very specific polling of citizens on the agricultural policy, the last survey in November 2005, has given the picture of a sympathetic but circumspect and demanding clientele.

The emergent point of view indicated support for stable and adequate incomes for farmers, together with approval of the shift from production support to protection of the rural environment generally, and more orientation towards consumer interests, such as guarantees of food safety and quality. In democratic Europe, government at any level may do well to take on board that public knowledgeableness, judgment and support should provide the most dependable guide for policy in the coming decades.

Reference:

CAP Reform: Commission steps up efforts to simplify the Common Agricultural Policy; http://europa.eu/rapid/pressReleasesAction.do?reference=IP/06/129 – 28.10.06

Eurobarometer: What Europeans Think of the CAP; http://ec.europa.eu/agriculture/survey/index_en.htm – 28.10.06
European Commission, Agriculture and Rural Development: http://ec.europa.eu/agriculture/events/simplification/index_en.htm (26.9.06)

Fischer Boel M., Simplification of the CAP: Meeting the Challenge; Conference “A Simple CAP for Europe” SPEECH/06/556. Brussels, 3 October 2006.

Judt T (2005), Postwar: A history of Europe since 1945. Heinemann, London.

Lisbon Strategy: http:ec.europa.eu/agriculture/Lisbon/index_en.htm – 27.10.06)

The Common Agricultural Policy Explained, EU Directorate General for Agriculture, October 2004. ISBN 92-894-8204-4

Wikipedia, Biomass: http://www.en.wikipedia.org/wiki/biomass – 28.10.06

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