EU farm policy reform seen affecting land prices

Plans for a more equal share-out of direct subsidies to farmers in different European Union countries are set to affect farmland prices from 2014, a senior EU official said on Wednesday (6 April).

The bloc's executive, the European Commission, has called for greater equality in the distribution of direct payments between old and new EU member states as part of the upcoming reform of the €55 billion a year Common Agricultural Policy (CAP).

Direct payments currently account for about 70% of the annual CAP budget but while the EU average rate is about €250 per hectare, actual levels vary from more than €500 per hectare in Greece to less than €100 in Latvia.

"Farmland prices are partially based on the level of subsidies that they generate, as well as other factors such as commodity prices," said Tassos Haniotis, head of economic analysis at the Commission's agriculture department.

"Redistributing direct payments among member states and within member states will affect asset values, and we're going to see it start touching some of the most competitive member states," he told an EU flour millers' association event in Brussels.

Previous analysis by the Commission showed that any redistribution of direct payments between countries should be smooth, to avoid sudden increases or decreases in land prices in different parts of Europe, Haniotis said.

That is why the Commission is likely to propose a phased increase in the level of direct payments paid to farmers in newer EU countries such as Poland, Romania and Bulgaria when it makes legislative proposals for the CAP reform later this year.

No flat rate subsidy

Poland is one of a number of newer members calling for an EU-wide flat rate for direct subsidies based on land area as part of the CAP reform.

But in a November policy paper the Commission ruled out moving to a flat rate, which would imply a huge redistribution of funds, and instead said all countries could receive a minimum percentage of the €250 per hectare EU average rate.

A sudden fall in land prices would have a negative effect on the most productive farming regions in Europe, where debt-to-asset ratios tend to be highest, Haniotis said.

"If you look at Denmark and the Netherlands it's above 40%, so the most competitive countries in Europe have more debt, which is good debt because it's mainly used for investment."

"But if you go to the bank and your repayment is based on your asset values, and land prices fold, then there is a problem," he said.

(EURACTIV with Reuters.)

The European Commission unveiled its blueprint for reforming the EU's Common Agricultural Policy (CAP) in November 2010, proposing to increase subsidies to smaller East European farmers and to link direct payments to environmental and food security goals.

Totalling around €55 billion last year, farm subsidies consume more than 40% of the European Union's €130 billion annual spending.

Earlier in spring 2010, the Commission argued that the CAP should be reformed in a way that unlocks the potential of rural areas to contribute to the bloc's economic growth strategy for 2020.

The last round of CAP reform efforts was launched in 2003 and featured a 'decoupling' of agricultural production from subsidy payments in order to prevent over-production and waste.

  • July 2011: Commission to publish legal proposal on CAP post-2013; negotiations with European Parliament and Council to start.
  • 2012: Negotiations with European Parliament and Council.
  • 2013: Drafting of new CAP strategy and programmes.
  • 2014: Implementation of new CAP to begin.

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