#AfterCAP | Uncertain Terrain
but Targeted Suggestions
from Alan Matthews
Posted on 16 November, 2016 by ARC in Main stories // 0 Comments
Alan Matthews assesses the terrain of competing forces in CAP
reform, before suggesting some radical changes post 2020 (or,
2022/23). These include a more targeted, results focused CAP for
both farmers and member states, with a single pillar, co-financing
and savings reinvested in public goods among the proposals.
The background note for this #AfterCAP: What’s Next? debate
raises the question whether the CAP is at a crossroads (as
suggested by the Slovak Presidency background paper for the
November 2016 AGRIFISH Council meeting) and, if so, which
direction should it take. Whether we are at a crossroads or not
requires evaluating the balance of forces behind the 2013
compromise CAP outcome.
Will it all be cleaned away for a fresh start? Or will things remain much
the same? © European Union 2016 – European Parliament (CC BY-NCND 4.0)
The 2013 CAP confirmed a continuing role for decoupled direct
payments paid on a per hectare basis, increasingly justified as
providing an income safety-net for farmers in the light of increased
market price variability in recent years. It transformed a significant
share, 30%, of these payments into a greening payment intended
to reward practices favourable for the climate and the environment.
It created a crisis reserve mechanism which relies on redistributing
the direct payments envelope among farmers (internal solidarity). It
strengthened the mechanisms for cooperation among producers. It
redesigned rural development programmes around six priorities
and, in general, gave a lot more flexibility to Member States
regarding how they wanted to implement both Pillar 1 and Pillar 2
measures.
There are few stakeholders who seem satisfied with this outcome.
Farmers dislike the additional requirements imposed to receive
‘their’ payments and argue that the CAP mechanisms have not
provided an adequate response to the cyclical drop in farm
incomes over the past two years. Member State administrations
complain about the complexity of the new rules and the legalistic
enforcement by the Commission. Environmentalists are dismayed
that there is little evidence of improved environmental outcomes
from the greening payment. The slow approval of rural
development programmes delayed the start of the new CAP by
one year.
Read: the #AfterCAP Debate in full
The Commission has promised to consult widely on the
‘modernisation and simplification’ of the CAP. The report of the
Agricultural Markets Task Force was published earlier this week,
and the Commissioner will give some indication of his political
priorities before the end of this year. A Communication from the
Commission is now expected in the second half of next year. With
limited time in the current parliamentary term which will end after
the first quarter of 2019 and a new Commission taking up office in
October 2019, what proposals might be expected to emerge from
these initiatives?
Some changes will be expected on market management and risk
management. Supporters of a more interventionist CAP will point
to the voluntary supply reduction scheme introduced in the dairy
sector and may try to make this a more permanent fixture of the
CAP. The Agricultural Markets Task Force has recommended that
the EU’s risk management toolkit should be made more attractive
as well as become a mandatory element in Member State’s rural
development programmes. It has proposed that funding should be
shifted from direct payments to fund “a genuine and predictable
safety-net for farmers to apply in times of market imbalance”.
There is some support in the Parliament to introduce countercyclical payments in the EU, following the US example, although
such a major reversal of the past trajectory of CAP reform is
unlikely to be widely supported.
It is much less clear what initiatives might be expected to help
improve the environmental outcomes of land management and the
sustainability of EU farming more generally. The focus to date in
this area has been on ‘simplification’ rather than ‘modernisation’.
Agriculture faces significant challenges in reducing its greenhouse
gas emissions as well as in adapting to climate change. There is
an urgent need to step up action to protect biodiversity as well as
to restore healthy soils. But there is little agreement, also among
environmental NGOs, whether these goals can be best achieved
by building on the existing greening payment or by starting afresh.
In a recent paper for the European Parliament’s AGRI Committee,
I tried to provide guidance on how to chart a course for the CAP
beyond 2020. There are four core chapters in the report. The first
summarises how the CAP 2013 reforms have been implemented
in Member States. The second chapter provides a critique of
decoupled direct payments. It concludes that these payments are
not an effective instrument to address the challenges facing EU
farming, they are not equitably distributed, and they are not an
efficient use of taxpayers’ money.
The third chapter discusses options for incremental changes to the
current CAP, which would maintain the existing structure as set out
in the four basic acts but adjust specific aspects. This might be the
most likely outcome given the political constellation around further
CAP reform at this point in time, but incremental changes will not
address the underlying weaknesses in the current policy.
The final chapter thus suggests the outline of a bolder approach to
reform, which builds on a set of policy principles (I expand briefly
on these principles in this blog post).
▪ Payments should be targeted on specific objectives with a clear
results orientation1.
▪ Payments should be restructured within a one-pillar,
programmed, multi-annual CAP.
▪ National co-financing should be required for all CAP
expenditure, with the degree of EU co-funding calibrated on
the extent of EU value added of CAP expenditure.
▪ Decoupled direct payments should be gradually phased out
over a pre-announced transition period.
▪ Savings should be redirected to more spending on risk
management, improving competitiveness, climate action,
environmental public goods and strengthened resilience
and sustainability.
▪ Payment entitlements should be replaced by a contractual
framework between farmers and public authorities.
▪ Cross-compliance and the greening payment should be
replaced with ‘conditional greening’ whereby the receipt of
public support would be conditional on enrolling in a basic
(shallow) environmental scheme devised by the Member
State.
▪ The allocation of budget resources should be incentive-based
so that budgets are allocated to Member States based on
performance as well as needs.
Whether there is an appetite to base a future CAP on these
principles at this point in time remains to be seen. But it is unlikely
that policy-makers can simply continue with the status quo or even
incremental changes for budgetary reasons.
We do not yet know what the Commission is likely to propose for
the CAP budget in the post-2020 spending period. Because of the
Parliamentary timetable and the appointment of a new
Commission in the second half of 2019, there is a suggestion that
the current Multi-annual Financial Framework (MFF) may simply
be extended for a further two or three years to 2022 or 2023. This
would give the new Parliament and the new Commission the
opportunity to shape the next MFF after they taken office. The
expectation, in that scenario, is that the current CAP budget would
be extended as well.
However, if Brexit occurs before those dates, it may not be
possible to maintain the status quo given that the UK is a
significant net contributor to the overall EU budget. There is the
possibility that some of the gap left by the UK departure could be
covered by alternative sources of finance. For example, the UK
may continue to make a net contribution to the EU budget
depending on the type of relationship it wishes to have with the EU
after Brexit. If tariffs are re-imposed on UK-EU trade, this would
raise a significant amount of additional ‘own resources’ which
would offset the loss of the UK net contribution.
On balance, however, it seems probable that there will be less
money available for the EU budget after 2020 and thus less money
available for the CAP, even without any updating of the MFF to
match new EU priorities such as investment, security and
migration. In those circumstances, the single most important
decision on the CAP after 2020 is whether the legislators decide to
take account of a lower budget by reducing measures currently
financed under Pillar 1 or measures currently financed under Pillar
2. Will the legislators prioritise per hectare payments to all farms or
the more targeted measures including rewarding improved land
management now funded under Pillar 2? This is likely to be the
defining debate for the CAP after 2020.
Alan Matthews is Professor Emeritus of European Agricultural
Policy at Trinity College Dublin, Ireland.