Jack Thurston is co-founder of farmsubsidy.org, which tracks CAP payments and recipients of farm subsidies in every EU member state to help people find out who gets what out of the EU's CAP and why.
He was talking to EurActiv's Frédéric Simon and Outi Alapekkala.
Let's start with a very general question on CAP reform, which is coming up slowly but surely. Obviously, the money is the big issue in the discussions – seen from your perspective as an NGO which specifically tracks the money, where would you say the biggest stakes lie? From a member state's perspective, but also from a beneficiary's perspective.
Well, we know that the EU-15 member states generally do much better out of the CAP – particularly the first pillar of the CAP, the traditional direct payments to farmers – than the new member states. So that's one axis of inequality.
They do better in what sense?
They get more money per hectare, so they get higher payment rates. If you take a farm and put it in France, it gets a certain amount of money. If you take the same farm and put it in Latvia, it gets a lot less. So there is this inequality based on the terms under which the enlargement agreements were made.
This inequality will persist even when we come to 2013, when the payment rates have been scaled up to be equivalent. They won't really be equivalent because the yield rates which were used to calculate entitlements for these kinds of payments were set at very low levels – reflecting probably the worst times in the recent agricultural history of these new member states. It was the time of the post-communist meltdown, when they weren't producing much – and these were the years that were used to calculate the yields.
It's very easy in the CAP to dive very quickly like a submarine into detail, but I'll try and avoid doing that. I can tell you that one axis is certainly East-West. Another axis is on the basis of types of farm – and this is the case in whichever country you're looking at: the types of farm that do best from the CAP are the traditional cereal and oil seed farms and more intensive livestock farms – the lowland farms that are down in valleys.
The farms that do worst tend to be the upland mountain farms, and there have been some attempts – particularly in France recently, under Michel Barnier – to move the money uphill, to take the money from the valleys and push it up into the mountains. But still this is a real inequality in the CAP.
You could say there are some inequalities North-South, because the CAP was created for the original six member states so it's focused on beef, sheep, cereals, dairy, sugar… the kinds of things that these countries had a large agricultural sector in. The new member states joining, like Spain with its Mediterranean crops, have tended to do less well. This is because the CAP has always clung very close to its past.
The past weighs very heavily on the future of the CAP, because once you start getting people used to a stream of money, it's very difficult to take that stream and redirect it to into a different place. So there's a kind of 'inertia' in the policy, because the politics of it is that once people start receiving money, they like to keep receiving it and they build a very strong political lobbying system in order to preserve that.
In terms of companies, there have been some big companies getting money and these are the ones that have dominated some of our exposés – the ones that get more than a million pounds, like the big sugar producers in the French-dependent territories far away from metropolitan France, and then companies like Nestlé who are trading in products rather than actually making them. I'm not sure that this is an inequality; it's more a fact of the way the system works.
Generally, the bigger you are, the better your land and the older your member state, the better your returns are from the CAP. Obviously there are exceptions, but this is pretty much the pattern.
You mentioned the company Nestlé, but Danone is also receiving aid – how does it work? Can they be considered farmers? Do they own land?
No – they're not receiving money because they are farmers, they're receiving money because they are operating in the EU's rigged market, for milk and sugar primarily. Although I did see there were some large payments to Doux, the French poultry producer, and I'm not quite sure what explains those I have to say – it could be an export subsidy.
But generally the reason these companies are getting the money is because we have a tariff wall around the EU, which keep imports out and then keeps the price higher in the EU.
So if you're making yoghurt and you want to export it to the Middle East and you make it with milk powder bought in the EU, you've paid more for that milk powder than you might have done if you were able to import it from New Zealand.
So the EU recognises that you are at a cost disadvantage when you are exporting to the Middle East and gives you an export subsidy that will bridge the difference between the higher price in Europe and the price you could have paid with access to all the world's markets.
How much do these subsidies represent of the total CAP budget?
That's available in the statistics on the EU budget. It's a relatively small amount. It went up quite high in 2009 because of the milk crisis, but is generally on a downward trend. In 2010, intervention in agricultural markets is €4 billion (in 2008 it was €5.5 billion) and that compares with direct aid, which is €39 billion, and rural development, which is €14 billion. So it's probably less than or around 10% of the total.
Could you consider the argument, perhaps from a legal point of view, that this creates competition distortions within the EU market for those companies receiving such benefits? Not every company is big enough to export its milk, so doesn't that create competition issues with other producers?
You could say that there's a kind of cross-subsidy going on, where Danone is making more profits on its export markets and is able to use that money to make its internal market operations more profitable – you could make that argument. I haven't seen it made, but I'm certain that you could make that argument.
Going back to the member states – you said that those that stand to win the most from the next round of CAP reform are the Eastern member states, because they had the transition period just after accession. Do you see other member states emerging as standing to lose or win from the next round?
It really depends on the content of the next CAP reform and the approach that the 'new' member states take to the reform. It may be that they focus on defending the overall size of the budget, the current structures and the first pillar – direct aid – when actually the country receiving the most from the second pillar is Poland. If you were to shift the money from the first pillar to the second pillar and simply redistribute it in the same way, the countries of Central and Eastern and Europe would do very well.
In the same way, if you took money from agriculture and put it into structural and cohesion funds, the East countries would do very well because they have more economic disadvantages – the criteria which shape the allocations of money within rural development and structural cohesion funds. Those funds are a little bit more based more on need, whereas the direct aid funds in the first pillar of the CAP are more based on historic entitlement – and if you don't have the historic entitlement, it's very hard to get it in the future.
What some people are talking about – including [European Commissioner for Agriculture and Rural Development] Dacian Cioloş – is moving towards a flat rate payment. I don't know if they mean flat rate for the whole of the EU, spread evenly, which would work out at around €270 per hectare per year if they use the same budget as they have now (€40 billion). But I don't think that this simplicity is any match for the political process, because the redistribution that it would imply is enormous – not just within budgetary allocations to countries, but also entitlements to farmers.
Who is supporting this option?
It's been put forward by the countries that get less than the average, as you'd expect: Latvia, Lithuania etc. The countries that get more than the average don't want to move to a flat rate while for those that get less than the average a flat rate would be good – it's that simple in terms of the way that most member states approach the policy: it's simply to get as much out of it as they can and as much as they can compared to how much they put in.
There is a lot of talk now about the 'eco-conditionality' of payments. Who do you think would be the main winner with this kind of option?
It depends what kind of option it is, at the moment we do already have a kind of 'eco-conditionality': it's called cross-compliance. It's possible that if a farmer fails to observe the law of the environment, they can have some of their payments reduced – this already exists, but it doesn't really work very well.
First of all it's based on the law, which should be observed anyway – in the EU we don't have the principle of 'the polluter gets paid not to pollute', we have the principal of polluter pays. If you pollute, you should be getting a criminal civil action anyway, not just having your subsidies removed. So in theory it's flawed, and in practice it's not really being implemented very strongly. The inspections are very infrequent and when the fines are imposed they are very small, between 1-3%, and mostly it's to do with not having the correct ear tags on cattle – that's the main 'crime' that they find.
There have been some high profile cases, for instance in Scotland there was a farmer who was poisoning wild birds and he was fined quite a lot or at least had his subsidies removed, but he's contesting that in a court case which is ongoing.
This eco-conditionality could be strengthened, but I think that anyone working in environmental policy and agriculture would say that it is a flawed structure for doing it. What we should do is have payments that require farmers to go beyond the legal minimum and to make certain actions under a long-term contract which will help with flood defence – making the land more absorbent to water so that when the heavy rains come, the water doesn't rush down into the valleys and cause destruction.
This is one method justifying these payments and making sense out of the system, so they can take flood control measures, do more water conversation in areas with risks of drought and create habitats for wildlife – for insects that pollinate agricultural crops or for farmland birds that are in decline – to basically restore the biodiversity of our continent, or simply to make it look nice so that the countryside is a beautiful place to go.
But that's more what we call 'agri-environmental' programming. Eco-conditionality is 'if you do something bad, we'll take away the money', whereas agri-environment is more 'if you do something good, we'll give you the money. You see the difference.
Do you think that all these agri-environmental measures will stay in the second pillar and that the first pillar will stay as direct payments? Some argue that they could be combined.
I don't quite understand what the point of these pillars is these days. There are two differences between pillars one and two at the moment: the big one is co-financing – pillar two is co-financed, whereas pillar one is 100% EU financed. I think everyone is accepting that the CAP budget is going to be co-financed after 2013. Even someone like Paolo de Castro, who is quite conservative, would accept that this is what is required.
This could be considered as a kind of re-nationalisation of the policy. Meanwhile, everybody currently denies moves to re-nationalise the CAP.
Why is it renationalisation? Every other part of the EU budget is co-financed. Pillar one of the CAP is the only piece which is not.
If you see it from the wider EU perspective, the CAP is a very large part of the budget because it is the only truly European policy…
Well only if you define an EU policy as one which is 100% funded by the EU, but then you're in a circular argument. We have many genuine EU policies, such the structural programmes.
But if you go for co-financing, won't some member states want a smaller CAP? Isn't that the argument they're putting forward - that with co-financing we can halve the amount of money in the EU budget used for the CAP? It's not likely to be backed by large recipient countries...
No, it's not likely to be backed by large recipient countries. But if a country such as France, which has traditionally received a lot, looks to the future and sees itself becoming a large contributing country towards the middle of the next decade, then maybe the French ministry of finance will say 'the CAP, which used to bring in all this good German money to France, is now taking all this good French money and sending it to Poland'.
But that's inevitable with the end of the transition period for the new member states – unless there is a reform of course. Do you see France warming to the idea of co-financing?
For sure, they've already been talking about more national responsibility and this sort of thing. Even within the first pillar, because of Article 68, which allows member states to shift some money from the traditional entitlements into new policies linked to particular issues to do with mountain areas – and this is the option that Michel Barnier negotiated in the health check and then used very heavily in his own implementation of the health check – we are seeing more and more national flexibility and options for decisions on the CAP.
So some measure of financial responsibility going hand in hand with that would make quite a lot of intellectual sense. If this is a way of freeing up some money in the EU budget, then it's the way to square the circle. The only problem is that it could increase the overall cost of the EU per se beyond what it is at the moment – because you've not just got the EU budget of around €140 billion, you've then got new co-financing for the first pillar of the CAP, which would probably take the net cost of the EU to a higher level.
So for countries that are struggling with their budget deficits, they may be thinking that they'll have to put money into the EU budget and then do this new co-financing for the CAP. So there'll need to be some modelling going on to see which countries are going to be particularly affected by this, and obviously the big unknown is the rate of co-financing.
To return to France, you would imagine that it would end up putting quite a large amount into this bill if co-financing was introduced.
They would, but at least the money they would be paying would be staying in France, rather than leaking out to Poland. The question is – what is the rate of co-financing? There has been some talk about introducing variable rate co-financing dependent upon the relative wealth of the country concerned, so you would look at something like GDP per capita.
Some farmers are very afraid of being in an unequal position compared to other farmers in the internal market, if we return to co-financing.
Everyone is talking about compulsory co-financing, not optional co-financing. They're saying this is the CAP, this is the amount that the EU puts in and this is the amount your country must put in as a Treaty obligation, not an option.
Co-financing of the CAP could also mean a reduction in the overall EU budget.
It could do, but have you ever seen a group of politicians giving up the chance to spend money?
But it could be used as an argument for those who want to see the overall EU budget reduced.
It could, but then you'd see the [European] Parliament go crazy. With the Lisbon Treaty arrangements for co-decision on the budget, I would be very surprised to see the current Parliament accept a reduction in the EU budget. Maybe a slight one.
The Parliament's agricultural committee wants to preserve the overall amount going to agriculture, and if they can do that within the new co-financing mechanism, that's great. And what the rest of the Parliament wants to do is free up €10-15 billion on something else. I don't know on what but in general elected politicians love to spend money. This co-financing deal will make this possible.
The CAP has traditionally been for very large intensive farming, with spending mainly going to France and northern Europe, would it be true to say that the trend is that CAP payments are going to more and smaller farmers than at the beginning? Do you expect this trend to continue?
I think what we're seeing in the evolution of agriculture in the EU is something that's been driven by markets, not overwhelmingly by policy. This intensification has really been driven by the farming economy and technological change, not the CAP.
Sure, the CAP was to a certain extent pushing in the same direction for many years, accentuating the pressure from the markets, but I think that the market pressure is dominant. So in terms of people leaving the land, it's market pressure not the policy.
Where the policy may be becoming a little bit stronger is trying to address some of the market failures, the things which society values that don't have a market – and in a sense that is what the second pillar was attempting to do, particularly the agri-environment spending.
In terms of market failure, it's really an issue to do with over-intensification and over-exploitation. Obviously you can correct market failures through regulation, just as much by paying people to do things. You can have laws that say you must not do them, so finding the right balance between what is in the law that farmers can and cannot do and what they get paid to do or not to do is very important.
There has traditionally been this overemphasis on paying money rather than making law. But we'll see how that goes.
The argument coming from the environmental groups is that public money ought to be motivated towards supporting public good provision. Meanwhile, 'public goods' require a very strict definition: it is not just something that's good for the public, it's not provided in a traditional market-based exchange with private actors, it's the things that are 'not for sale'.
When people say that food is a public good, that's not really true, it doesn't meet the economic definition of a public good. The continued long-term capacity of European landmass to be productive for food in 10, 20, 30, 40 years could be considered as a public good. We should therefore be taking measures to protect soil and water, and to prevent species necessary for pollination from being wiped out.
Longer term preservations of our productive capacity could be considered within the public good argument, but just simply maximising the production of food and keeping farmers in business producing food I don't think meets the criteria of public good.
But we are not there yet in terms of policy. The rhetoric is certainly there and changes fast, but the policy behind it changes slowly. When you look at the policy you see that what they say is nowhere near the reality, it's just good rhetoric for press releases and speeches.
At the CAP conference in Brussels, several stakeholders seemed to be in favour of more money for rural development. Do you think that it would be a good idea to go down that road or would member states see the money as coming purely to themselves and not for agriculture?
Taking CAP money and giving it to the rural economy more generally is what some countries, who don't have a particularly large agricultural economy or rural development problem, may be seeking. Indeed, some currently have problems spending all this money and they would like to put it into other aspects of the rural economy.
I'm not sure that a strong political lobby exists for this, however. I don't see the rural business associations, the bed and breakfast people, the people who want to set up computer programming companies in the rural areas marching to Brussels and throwing their computers on the floor outside the Berlaymont building. I think that farmers are much more politically motivated and powerful and are able to make their voices heard.
In terms of taking money away from farmers and giving it to non-farming rural businesses, it isn't generally something that politicians, who have responsiveness to political pressures, are generally willing to do.
However, a lot of emphasis was placed on the need to improve public services and infrastructure building to increase attractiveness of rural areas.
There are aspects of rural development that benefit everyone, such as good roads and rural broadband, which is very important for all businesses - especially when Dacian Çiolos talks about integrating farmers more closely into the supply chains so that they can get a good price and make contracts more directly with the end-consumer, to have fewer links in the chain.
Because when you have more links in the chain, there's a concentration of market power in the supply chain. And this is one of the issues Çiolos has highlighted. He hasn't really stamped a strong authority on the policy yet but he has brought this area to the fore compared to other commissioners. I think that it's a response to the milk crisis.
But he also sees the plight of smaller farmers and realises that small farmers can't compete with big farmers on the price game, so they either have to offer a slightly differentiated product or deal more directly with the end consumer.
But you also need training and a kind of a new mindset for a lot of farmers, as a lot simply think that 'I'll produce my basic commodity and somebody comes to the farm gate every week and collects it', and that's it.
You just mentioned the dichotomy between large-scale industrial farming, which is economically-driven, and smaller ones that contribute to rural development. Is it fair, in your view, that the large competitive farms still receive EU funding?
You need to look at how direct support is justified. The EC Treaty sets out the objectives of food supply and preserving a fair standard of living for Europe's farmers. I get the feeling that a lot of these big farms produce pretty good returns for their owners and would continue to do so with or without the CAP, so the income support element is hard to justify, particularly with regards to rich people or large companies.
These are not farmers who have no money to feed or clothe their children; we are talking about farmers who are either corporate entities with shareholders or very wealthy landowners with huge incomes and assets.
If we do think there should be an income support aspect to the CAP - and that's a big if because it's a social security matter and up to national governments to decide whether they want to have a minimum wage - then we ought to first of all measure farming incomes, which we don't do at the moment even though they are above-average incomes when non-farming incomes are also taken into account.
We should thus be means-testing payments in some way, taking into account farmer household income and 'top it up' if it is below a certain level, and disqualify those who don't need it.
If we are talking about the CAP as a policy for protecting Europe's future capacity to produce food and preserve the environment, make it look beautiful, restore habitats and species, conserve water and protection against flood risks, then those arguments about farmers' income become less relevant.
We are essentially talking about government contracting for environmental services. In a sense, whether you have 100 or 1,000 acres, the amount of services you provide should be the determinant of the amount of payments you receive – and your income is not relevant.
Your organisation also discovered that payments were being made to the UK Royal Family.
Yes, not only in the UK but also the Crown Prince Hans-Adam II of Liechtenstein, who is not even an EU citizen, was receiving more than €2 million for his farm holdings in Austria. We found lots of aristocracy in Germany, as well as Prince Albert of Monaco and the Duchess of Alba in Spain.
If you own a lot of land, you get a lot of money from the CAP, it's rather automatic. In particular, if you own good land.
In terms of the bigger picture of the future CAP budget negotiations and putting it into the financial perspective debate taking place at the same time, we can perhaps characterise member states' positions like France wanting to preserve the CAP and its first pillar as much as possible and on the other extreme the UK wanting to reduce the overall amount of the CAP - where do you see Germany standing in this game?
A long time ago, when I was working as an advisor to the British farms minister in the Agenda 2000 negotiations, the 'Capri Group' - Britain, Italy, Sweden and Denmark - existed in favour of reform, and occasionally the Netherlands, where Germany would attend meetings as observers. When Renata Künast was minister, there was a lot of change in the approach of Germany.
I think things have gone backwards in terms of the reform agenda for the German Ministry of Agriculture. It seems that it simply looks at the amount of money coming to German farmers and tries to defend that without really caring about the amount German taxpayers pay for the rest of Europe's farmers as well.
Germany is a big net payer of around €3 billion into the CAP.
Will Germany want to reduce that amount?
They probably will, if possible, want to reduce the net drain on the German economy, but the question is how much it is willing to push that line and what kind of cuts it is willing to accept for its farmers.
But some say that Germany is 'such a good European citizen' that they are happy to pay this money. The amount Germany is paying to the EU budget would never be politically possible in the UK. There is such a difference in the approach to EU membership. Britain looks at 'how much are we putting in and how much are we getting out', like if it was a member of golf club and wondering whether it is worth joining for another year.
For Germany the EU membership is more of an existential question.
Clearly, co-financing would be hugely beneficial in budget terms to Germany.
But Germany is also one of the top four recipients of CAP money?
Yes, but I feel that the Agriculture Ministry of Germany only looks at the receipts side of the equation – it doesn't look at the contributions side.
But you also have to look at the coalition politics within Germany. Even within the CDU-CSU, farm ministers are traditionally from Bavaria, from the south, which gets most of the money. So there is a strong element of coalition politics there in terms of who's doing the negotiations.
And this is where we come back to the question of who will be deciding on the CAP reform.
Who will be the kingmaker – Germany? Could it play the referee role between the UK and France?
Yes, this could possibly be correct. And you have to remember that the reason for this current period of 'no reform since enlargement' is because of the deal done by Chirac and Schröder, which preserved the CAP budget until 2013. This was a Franco-German deal and others had no option other than accept it as a fait accompli.
But my question is who will be making the decisions on the CAP reform? Will it be the Agriculture Council, the farm ministers or some higher level of government – finance ministers, heads of government? And then we make a different outcome.
We've certainly seen that Sarkozy has made many different policy statements, not all of which are consistent with each other. And I also don't think he understands the CAP in the same way as Jacques Chirac did. Nor is he quite as committed to defending it at all costs as his predecessor was.
Remember that Chirac was a farm minister and came from an area where farmers get a lot of money from the CAP.
So I feel that Sarkozy is no quite as well equipped when you end up in one-to-one negotiations – because Chirac was just a master at this. He knew the policy and he was able to run rings around the others because he was a former agriculture minister and he cared deeply. And I don't think we see this approach from any other head of government.
And I also think that Sarkozy is more willing to countenance a trade-off on a bigger scale. So this is trading agriculture for some other aspects of European policymaking, whether it is in the budget or something that is non-budgetary. I think he is more willing to make those trades.
I think France would like to see their vision of agriculture policy taken up by Europe rather than them being just the break on the process of reform, which is essentially driven by Nordic and Anglo approaches.
France has traditionally strong links into the Commission, but the question is that when the policy gets taken up a level into the hands of the heads of government or finance ministries, what kind of outcome will we see?
You could make the same analysis looking at the approach of the European Parliament to the policy. Will it simply follow the lead of its agriculture committee or will the environment, development and budget committees and the Parliament at large have something to say about it? At the minute, I have to say that they don't seem very committed outside the agriculture committee.
Which do you see as the key countries capable of tipping the balance?
I think the Dutch are important because they have such an interest in reform, but they don't push it so hard. Italy can go both ways, it really depends. The Czech Republic is seen as potential reforming government.
I think we'll see Spain defending, and Greece. We will also see Poland and perhaps Romania and Bulgaria essentially defending, because they just want the first pillar for their farmers.
For them, the first pillar and its entitlement is seen as such an easy way to get money to the rural areas and to their farmers. The environment and rural development stuff is seen more complicated because it requires civil servants drawing up agreements and contracts and monitoring, and they don't have the capacity and it is expensive and they'd much rather just write the cheques and send them out with the first pillar.
So the first pillar is very attractive for those countries who don't have a very strongly developed capacity in their civil service for doing the more complicated programming which is required for policies which are linked to some kind of measurable outcome.
After the transition period for the new member states, they are making the case for preserving the first pillar.
But even though everything about them suggests that the second pillar is what they need for their economic development, improving infrastructure, etc., they seem to prefer the first pillar. Also, these countries have the most incredible biodiversity, which they should be getting paid to preserve.
The second pillar is really where they should be heading, but they don't seem to be.