Reformers call for new thinking on ways to finance the CAP

20-07-2015 (updated: 22-07-2015 )

Good Food March demanding real CAP reform. Brussels 2012. [(Greens/EFA)]

Under pressure from farm ministers and food producers, the European Commission is working to simplify agricultural rules that took effect this year. But some analysts say what the Common Agricultural Policy (CAP) really needs is a radical change in the way it is financed.

EU agricultural ministers in May called on the Commission to address administrative burdens related to environmental performance, penalties for farmers who fail to meet the environmental measures, and the approval process for rural development projects. They also pressed for reducing the paperwork involved for producer organisations.

National administrators have been particularly vocal in calling for a clarification of new environmental, or “greening” standards, introduced in the 2014-2020 CAP. Implementation of some policies was delayed until the start of this year because of the quarrelsome approval process in 2013 that involved the Commission, Parliament and Council.

Illar Lemetti, Estonia’s Deputy Secretary General for Agricultural and Rural Life Policies, told EURACTIV that his country “does not question environmental benefits which are to be achieved”, but said that compliance “has brought along many details that complicate the process both for applicants and officials”.

The Commission is to present simplification proposals later this year with expected implementation in 2016, a year before the new CAP is due for a “health check,” or a review that could lead to policy changes.

Re-thinking financing

But already some CAP stakeholders are looking further down the road, to post- 2020 reforms.

Samuel Féret, who heads the Groupe de Bruges think tank in Brussels, says the current farming package gave too much leeway to member states, making the policy less “common” and more a “CAP à la carte”.

Féret calls for greater financial accountability and a CAP that is more in line with the EU’s ambitions to be the global leader in research, innovation and environmental sustainability.

One way to do that, he says, is to put more emphasis on the CAP’s rural development programme, or Pillar 2, whose costs are shared by the EU and national governments. The first pillar, direct income support to farmers, is financed by the EU.

“In our view it’s a smarter way to invest in the future than in Pillar 1,” Féret told EURACTIV in an interview, adding that Pillar 2 projects are more “result-oriented”.

But EU financing for Pillar 2 in the 2014-2020 budget is less than one- third of that set aside for income support, €95.6 billion compared to the €312.7 billion.

The CAP is the EU’s largest single programme, accounting for some 40% of the EU’s nearly €1 trillion budget. By contrast, the EU’s Horizon 2020 research and innovation programme – which like the CAP, is seen as a vital source for jobs and global leadership – is €80 billion for the same period.

Féret is under no illuions that such a change would be easy. “It’s politically possible but it requires a new way of thinking. For many agriculture ministers, the Pillar 1 direct payment regulation is the best way to spend money each year. We spend the EU money, but lack some real assessment about Pillar 1 direct payments.”

A ‘Progressive’ way to pay for the CAP

Another post-2020 funding model calls for requiring national governments to share the costs of both CAP pillars. The Austrian researcher, who has suggested this shift to “progressive co-financing”, says it gives member states more flexibility to address their individual needs while reducing some of the imbalance in what countries contribute to the CAP and what they get in return.

This approach offers “a politically feasible option: in accepting variable co-financing rates the [EU member states] are in a position to autonomously decide on pillar 1 payment levels”, Markus F. Hofreither, of the University of Natural Resources and Life Sciences in Vienna, wrote in a 2013 study. The co-financing of the first pillar would also address the “common pool problem”, whereby member states seek to get as much funding as possible at the least cost.

Hofreither’s study also exposes one of the imbalances in the current funding model: older and richer member states such as Belgium, Denmark, France, the Netherlands and UK are the biggest beneficiaries of the current system. Newer members like Estonia Poland, Romania, Slovakia and Slovenia contribute a far higher share of their national budgets for overall CAP benefits.

Meanwhile, Europe’s organisation of young farmers is compiling recommendations for the future of farming. The current CAP introduced incentive payments and loan support in an effort to lure people under 40 into farming, in a bid to bring new blood to an ageing workforce.

This post-2020 “manifesto” will be presented later this year, said Matteo Bartolini, an Italian truffle producer who is president of the European Council of Young Farmers (CEJA). He told EURACTIV that the forthcoming document is likely to focus on “innovation, access to land and access to credit, food waste, the importance of soil and how to preserve the fertility of soil”, as well as international trade agreements.

Farmers need ‘policy certainty’

For now, though, the focus is likely to remain on making the current framework more workable.

“For the immediate future, in my view EU farmers need a period of policy certainty,” said Simon Coveney, Ireland’s agricultural minister who helped negotiate the 2014-2020 CAP under his country’s EU presidency in the first half of 2013. “We should not engage in further reform simply for the sake of it.”

“If we revisit CAP policy for the post 2020 period, it should be with the aim of adapting our policy, where needed, to further enhance its capacity to encourage the sustainable intensification of food production – which is one of the great challenges of our time,” Convey told EURACTIV by e-mail. “We should also, of course, apply the lessons that are emerging from the implementation process of the current CAP – including in relation to simplification.”

Positions

Asked what the next CAP reform should involve, Illar Lemetti, Estonia’s deputy secretary general for agricultural and rural life policies, told EURACTIV: “We would like to see CAP fulfilling its primary goals: ensure viable food production, together with support schemes which guarantee environmentally friendly production activities, but where the requirements are transparent, understandable, well justified and with moderate administrative burden.”

ARC2020, a platform for farming and environmental groups, said in a statement: “Simplification in theory sounds fine. Make life simpler. How could anyone be against that? Indeed every new Commissioner promises it when they start, a sort of ‘mom and apple pie’ promise of an easier life. The fear is, however, that the simplification is code for getting rid of environmental and other public goods, leaving farmers and the sector in general to do as they please, unencumbered. In a context of agri-food being so dependent on subsidy payments – that’s tax revenue from citizens, in return for better socio-environmental performance – simplification could be used to row back on the microscopically modest greening gains in the CAP reform debacle.”

A study by Markus F. Hofreither of the University of Natural Resources and Life Sciences in Vienna says “progressive co-financing” of the CAP’s Pillar 1 would have several advantages:

“It avoids searching for a consensus with respect to the ‘fair’ grading of premium levels at the EU level, which is a highly subtle undertaking in the light of historic experience;

“It allows MS with limited budget resources to opt for a premium with a low share of national co- financing;

“The increase of national co-financing requirements with rising premium levels forms an effective impediment against the currently dominating ‘common pool problem’ regarding Pillar 1;

“Compared with sometimes practiced top-up- approaches the risk of denying voluntary contributions out of national budgets is significantly reduced …;

“All measures of Pillar 2 - still subject to the agreed co-financing rates – would become more attractive.

“In sum,” Hofreither writes, “such an approach would principally provide positive incentives in order to address a number of open questions with respect to co-financing of agricultural support payments. The main improvements would be a gradual reduction of the tension between the CAP and the EU’s central principles of ‘subsidiarity’ and ‘additionality,’ as well as an alignment between the CAP’s pillars with respect to the unwanted bias which currently emerges from the ‘common pool problem’ related to Pillar 1.”

Copa-Cogeca, which represents European farmers and co-operatives, said in a statement on 15 July that food producers stand to benefit from a trade deal - the Transatlantic Trade and Investment Partnership - with the United States, but says more work is needed.

“Since the start of the [trade] talks, we have underlined specific demands which need to be met if these talks are to be a success,” said Copa Vice-President Harry Sinclair. “This includes removing red tape and technical barriers to trade and making progress on the Sanitary and Phytosanitary (SPS) chapter. Excessive controls which raise costs for operators and inspections must be avoided. Today , hard cheeses, semi-soft cheeses and soft ripened cheeses have to wait 60 days before circulating on the US market. The main issue here appears to be the testing methods which are not the same on both sides of the Atlantic. Can we use the best technology together?”

Copa-Cogeca Secretary-General Pekka Pesonen expressed concern that all fruit and vegetables products have to go through only one port, Philadelphia, while Europe is placing no such restrictions on the United States. “Those types of non-tariff barrier prohibit opportunities for small and medium companies to benefit from market opportunities,” the Copa-Cogeca statement said.

Background

Launched in 1962, the Common Agricultural Policy, or CAP, is a system of EU agricultural subsidies and programmes comprising the biggest single budget outlay for the EU – nearly 40% of today’s budget, compared to nearly 70% in the 1970s.

The CAP has always been a work in progress. Reforms begun in the 1990s sought to phase out wasteful production quotas. In 2003, efforts were untaken to “decouple” subsidies from specific crops or products, though the deal agreed on 26 June 2013 – and finally implemented in 2015 - changed that.

The new CAP also introduces incentives to encourage young people to become farmers and support family farming; the gradual harmonisation of Pillar 1 payments between farmers in the older EU member states and countries that have joined since 2004; and “greening” measures aimed at promoting soil conservation and protecting biodersity.

The programme’s total budget through 2020 is €408.3 billion, with €312.7 billion set aside for direct payments to farmers and €95.6 billion for rural development. The rest goes mainly for export support.

Timeline

November 2015: European Commission to present proposals to streamline CAP greening, market organisation and other requirements
2016: Anticipated introduced of CAP streamlining measures
2017: Planned CAP “health check”
2020: New EU budget cycle and possible CAP update

Reformers call for new thinking on ways to finance the CAP

Positions

Background

Timeline

Further Reading

Topics