The EU budget is in deep crisis, whose origins lie in the dispute on the distribution of the Common Agriculture Policy (CAP). A shrinking sector, that hardly makes any contribution to EU wealth is blocking the redistribution of the budget to more pressing needs, and in connection with this is also thwarting any agreement on the UK rebate, says Jorge Nunez Ferrer, an economic analyst at the Brussels-based think tank the Centre for European Policy Studies.
While one can argue that the UK rebate is excessive today, the same can be said for wealthy France, which absorbs a quarter of the CAP or €10 billion. This is due to the regressive nature of the policy, which ensures that the wealthier and more productive the farmers, the higher the CAP receipts. This can only be understood in the context of the origins of the CAP, which mainly supported products from France, a founding member of the EU and thus highly influential in the basic design of the policy. But this is no excuse for maintaining a system which so badly fits the needs of the EU and specifically those of the agricultural sector.
However, the CAP is difficult to change at this stage: a reform was recently agreed and further immediate reforms of the policy are unlikely. The nationalisation of the CAP is also unlikely to be accepted by many of the old member states, but also by the new ones. The EU is heading towards a gridlock, with the likely outcome being a frozen UK rebate and no reform of the CAP. All countries are attempting to find a solution to the EU budget, but these are limited to reducing the non-agricultural related expenditure (due to the famous 2002 agreement to freeze agricultural spending by Schröder and Chirac) or to find new correction mechanisms.
Rather than searching for rebates or other complicated solutions, one could link the contributions to the cost of the CAP to the value of this sector in the recipient countries, the CAP is after all a sectoral policy. If the contributions towards the CAP expenditure were based on the gross value added (GVA) of the sector, its regressivity at least at member state level would be reduced. Countries with the largest and most productive agricultural sectors would pay more. Countries with low-yielding, underdeveloped agricultural sectors would contribute less to the CAP, thereby introducing an element of budgetary justice.
The system proposed here is relatively straightforward. The costs of the CAP are isolated from the budget and contributions to its costs are based on the share of the EU’s GVA in agriculture of the individual countries. Only the share in GVA for products that are covered by the CAP should be used to avoid the distortions caused by certain important agricultural products that are not covered by the CAP but which may be important, such as ornamental plants in the Netherlands.
CEPS has set up a task force called 'The UK rebate and the CAP - phasing them both out?'. It includes Terry Wynn, whose membership of the European Parliament's agriculture and budget committees is a clear indication of his considerable expertise.
To read the full analysis, please visit the CEPS website.
