EU’s New Phase In Slow Retreat From Deluxe Farm Subsidies …

• November 23rd, 2010
• Posted by 7thmin

The fabled Common Agricultural Policy of the European Union (CAP), object of acrimonious debate over decades gone by, is in for a new phase of restructuring — but still not necessarily any evaporation of the cost.

BAD NAME

The CAP made its bad name in world trade negotiations as an instrument for paying government  money to agricultural producers, on the basis of production.

The result was the “butter mountain” and “milk lake” of the 1960s and well into the 1980s; huge stocks built up through over-production by farmers going for market prices below cost, then picking up compensation-plus in subsidies; an example,  the celebrated “milk cheque” that helped re-make the Irish economy to delusional levels.

The policy let loose floods of surplus product on global markets, like beet sugar, a competitor for tropical cane producers including highly-efficient exporters like Australia.

It was a common to see small farmers, from plots averaging 18 hectares, out demonstrating support for the system, parading tractors through the streets, besieging  farm Ministers’ meetings, glad-handing local politicians.

THE EC BLINKED

The then European Community blinked on the CAP in 1990, confronted by both the cost and the opprobrium of a “Fortress Europe” tag during the then GATT Uruguay Round of world trade talks – a forum where all-out efforts were being made to abolish non-tariff barriers to freer trade.

By that time the CAP, which had blown out to take up 70% of the EC  budget in the 1960s, was still soaking up €30-billion a year (then, A$49.75-billion); and it was announced that the system would shift away from paying directly for production

Spool forward to 2007: the Common Agricultural Policy was costing about the same, and still demanding 40% of the budget, but it had gone over to a structural plan, providing funds for land care, maintenance of small communities, and marketing and research assistance for agricultural industries.

NO MORE PRODUCTION- BASED DIRECT SUBSIDIES

The European Commission decided to sell off the last of the butter stocks that year, and also slashed support for quota-based sugar production.

On the new plan, intervention  extended to pulling back subsidies on wheat, and insisting on ploughing-in grape vines in very inefficient wine producing districts.

EUAustralia Online provided a history, 29.10.06, still accessible, called “Backgrounder: Update on the CAP”.

See also, “Last of the Butter Mountain”. 30.3.07; “Moving ahead on new look, still costly farming”, 30.3.07, and “Sugar Cuts” 2.2.07. See EUAustralia Online archive, “Farm Trade”.

NEW MOVE THIS WEEK

This week came further change, following the trajectory begun twenty years ago, and stepping very cautiously.

The new order had been pleasing to EU consumer groups (always exasperated with the idea that food had to cost more in a glut), but disliked by the politically powerful farm lobby — bolstered by the admission to the EU of certain East European governments, from time to time penalised for subsidising farm producers beyond the legal EU limits.

The   Agriculture and Rural Development Commissioner  Dacian Cioloş  declared (18.11.10)  he’d be making the CAP “greener, fairer, more efficient and more effective”.

He was moving on changes set for 2013, likely to see the introduction of a basic income support payment, adjusted by region; environmental payments for extra effort beyond basic cross-compliance  (such as green cover, crop rotation, permanent pasture, or ecological set-aside), and projects like a support scheme to enhance the competitiveness of small farms.

It’s a long way from the days of funny-economics, in the name of food security or preserving the rural shires, offering mountainous direct-payments for mountains of unsaleable products – but these will remain big-ticket items.

FULL STATEMENT FROM THE EUROPEAN COMMISSIONER

The full statement from Brussels:

Brussels, 18 November 2010

Commission outlines blueprint for forward-looking Common Agricultural Policy after 2013

The European Commission has today published a Communication on “the Common Agricultural Policy (CAP) towards 2020 – Meeting the food, natural resources and territorial challenges of the future”. The reform aims at making the European agriculture sector more dynamic, competitive, and effective in responding to the Europe 2020 vision of stimulating sustainable growth, smart growth and inclusive growth. The paper outlines three options for further reform. Following discussion of these ideas, the Commission will present formal legislative proposals in mid-2011

Outlining the Communication today, EU Agriculture and Rural Development Commissioner Dacian Cioloş underlined the importance of making the CAP “greener, fairer, more efficient and more effective”. He continued: “The CAP is not just for farmers, it is for all EU citizens – as consumers and taxpayers. It is therefore important that we design our policy in a way which is more understandable to the general public and which makes clear the public benefits that farmers provide to society as a whole. European agriculture needs to be not only economically competitive, but also environmentally competitive.”

Earlier in the year, the Commission held a public debate and a major conference on the future of the CAP. The vast majority of contributions identified 3 principal objectives from the CAP:

·         Viable food production (the provision of safe and sufficient food supplies, in the context of growing global demand, economic crisis and much greater market volatility to contribute to food security);

·         Sustainable management of natural resources and climate action (farmers often have to put environmental considerations ahead of economic considerations – but such costs are not rewarded by the market);

·         Maintaining the territorial balance and diversity of rural areas (agriculture remains a major economic and social driving force in rural areas, and an important factor in maintaining a living countryside)

This Communication looks at the future instruments that might be suitable for best achieving these objectives. For direct payments, the Communication outlines the importance of a redistribution, redesign and better targeting of the support, based on objective and equitable criteria, easy to understand by the taxpayer. These criteria should be both economic (noting the “income support” element of direct payments) and environmental (reflecting the public goods provided by farmers), with support better targeted towards active farmers. A more equitable distribution of funds should be organised in an economically and politically feasible way with a transition to avoid major disruption.

One approach could be to provide a basic income support payment (which might be uniform per region – but not flat-rate across the EU, based on new criteria, and capped at a certain level); plus a compulsory environmental payment for additional actions (annually) which go beyond the basic cross-compliance rules (such as green cover, crop rotation, permanent pasture, or ecological set-aside); plus a payment for specific natural constraints (defined at EU level) and complementing amounts paid via Rural Development measures); plus a limited “coupled” payment option for particularly sensitive types of farming (similar to the current option introduced [under Article 68] in the CAP Health Check). A simple, specific support scheme should enhance the competitiveness of small farms, cut the red tape and contribute to the vitality of rural areas.

On market measures, such as public intervention and private storage aid, there may be some scope for streamlining and simplifying measures, and possibly introducing new elements with regard to improving the functioning of the food chain. Although these mechanisms were the traditional tools of the CAP, subsequent reforms have enhanced the market orientation of EU agriculture and reduced these to safety net measures – to the extent that public stocks have virtually been eliminated. Whereas market measures accounted for 92% of CAP spending as recently as 1991, just 7% of the CAP budget was spent on them in 2009.

Rural Development policy has allowed enhancing the economic, environmental and social sustainability of the farming sector and rural areas, but there are strong calls to fully integrate environmental, climate change and innovation considerations into all programmes in a horizontal way. Attention is drawn to the importance of direct sales and local markets, and the specific needs of young farmers and new entrants. The LEADER approach will be further integrated. In order to be more effective, a move towards a more outcome-based approach is floated, perhaps with quantified targets. One new element in future rural development policy should be a risk management toolkit to help deal better with market uncertainties and income volatility. Options should be open to member states to address production and income risks, ranging from a new WTO-compatible income stabilisation tool, to strengthened support to insurance instruments and mutual funds. As with direct payments, there should be a new allocation of the funds based on objective criteria, while limiting significant disruption from the current system.

The Communication outlines 3 options for the future direction of the CAP, in order to address these major challenges – 1) adjusting most pressing shortcomings in the CAP through gradual changes; 2) making the CAP greener, fairer, more efficient, and more effective; and 3) moving away from income support and market measures and focusing on environmental and climate change objectives. In all 3 options, the Commission foresees the maintenance of the current system of 2 Pillars – a 1st Pillar (covering direct payments and market measures, where rules are clearly defined at EU level) and a 2nd Pillar (comprising multi-annual rural development measures, where the framework of options is set at EU level, but the final choice of schemes is left to member states or regions under joint management). Another common element to all 3 options is the idea that the future system of direct payments cannot be based on historical reference periods, but should be linked to objective criteria. “The current system provides different rules for the EU-15 and the EU-12, which cannot be continued after 2013”, Commissioner Cioloş insisted today. More objective criteria are also need for Rural Development allocations.

More information:

annex: description of the three broad policy options

website: http://ec.europa.eu/agriculture/cap-post-2013/communication/index_en.htm

MEMO/10/587

Reference

EC, Brussels, “Commission outlines blueprint for forward-looking Common Agricultural Policy after 2013”, IP/10/1527, 18.11.10. http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/1527&format=HTML&aged=0&language=EN&guiLanguage=en, (22.11.10).

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