“Expected growth in demand and higher real commodity prices offer tremendous opportunities for farmers and government alike,” said Ken Ash, OECD director of Trade and Agriculture, during the report’s launch in Brussels.
Next week, the European Commission will unveil proposals for CAP reform after 2013, which accounts for around 40% of the EU’s annual budget. In 2010, the EU spent €58.2 billion on agriculture and rural development.
“A window has opened for re-orientation of policy away from broad income support and towards investments in a strong and competitive agri-food sector,” said Ash.
The OECD Evaluation of Agricultural Policy Reforms in the European Union shows that European support to farmers has decreased substantially over the past 20 years. Farmers earned 22% of total annual receipts from government support over the 2008-10 period, down from 39% annually over the 1986-88 period.
The decline, according to the Paris-based organisation, is due to many factors, including high commodity prices, which automatically push down income support, as well as reforms of the CAP over the past 25 years.
Still "a significant share of income support leaks to unintended beneficiaries, ie farmers who do not have necessarily low incomes," reads the OECD report.
Currently large farms receive the largest proportion of income support, despite the fact that their income is above average, and much of this support is given to the EU's 15 older member states, where roughly one-quarter of the largest farms received an annual income of about €73,000 per farm in 2007, representing approximately three times the average of all farms.
The Commission has proposed cutting payments above €150,000 a year, with a cap at €300,000, according to the draft proposal. Only farmers who employ large numbers of labourers would be able to receive more than this amount. Besides saving money, Brussels argues the measure would better distribute the EU's funds.
The OECD said however that "modifying the distribution of payments by imposing ceilings on individual farms or excluding hobby farms would not address the problem” and would in fact encourage the break-up of larger farms.
"More could be achieved with less if only those who needed support were targeted," said the OECD.
The OECD also cautioned at the Commission’s intention to ‘greening the CAP’ by making a third of EU direct subsidies contingent on farmers’ sustainable behaviour, including allocating 7% of arable land to “ecological focus areas”.
Ash noted that at a time when food demand grows faster than supply, a land set-aside program must be very specifically targeted and apply to very fragile lands.
The report indeed notes that "early attempts to attach environmental conditions to direct payments have been shown to have had a limited impact on the environmental performance of agriculture."