Economists and policymakers discuss Brussels’ views on CAP reform

In November, EU Commissioner Dacian Ciolos revealed proposals for the future of the Common Agricultural Policy, and it was these themes that senior DEFRA officials and members of the Agricultural Economics Society pored over at a recent meeting in Westminster


After the public debate around the future of the CAP in the autumn, the EU Commission proposed three options which, together with two less realistic options (doing nothing or abandoning the CAP altogether) would be part of the analysis undertaken by the Commission. director of economic analysis


The keynote speaker on the Commission’s proposals was Tassos Haniotis, within Brussels’ Directorate-General on Agriculture and Rural Development.


Mr Haniotis said the economic, social and environmental impact of each option, as well as their administrative costs, would be analysed, and he invited member states to provide their own analysis to support their views on the proposals.


In the view of DEFRA secretary Caroline Spelman, this meeting formed a significant part of that process. She made it clear that in her view the Commission’s proposals were “timid when they should be transformational”, describing the current CAP reform process as “a critical window of opportunity to make a transition to a very different future” and to make EU agriculture “stronger, more resilient and competitive”.


THE GOOD, THE BAD and THE UGLY


DEFRA senior economist Simon Harding identified elements of the package that were in his view “good, bad and ugly” (see table). He was very critical of the Commission’s proposal to continue indefinitely with direct payments to farmers, and the proposed top-up payments for natural handicaps, and he expressed scepticism about the effectiveness of “greening” Pillar 1.


He pointed out that the more targeted agri-environment measures are, the greater their effectiveness and the better the return on the money spent. And Mr Harding was also critical of the Commission’s desire to cap payments to larger recipients and focus support on smaller farmers, pointing out their relatively low level of output and efficiency.


INCOME SUPPORT


However Mr Hanniotis defended the continuing need for income support for Europe’s farmers, pointing out the gap that exists between agriculture and other sectors of the economy – particularly in some new Member States. He said that cost pressures on agriculture had made the last year one of the worst in recent times for farm incomes, underlining the need for direct support payments.


Mr Haniotis was questioned as to why the Commission had sought to confuse the identity of the two pillars of the CAP by placing measures previously identified with Pillar 2 – like Less Favoured Area support – in Pillar 1, and the proposed new income stabilisation measures in Pillar 2.


His answer made it clear that in the Commission’s new vision for the CAP, the pillars would be more closely defined by the type of funding they receive, rather than their purpose.


Pillar 1 would continue to be for annual payments made by Brussels without co-financing by Member States, and there will be a fairer and more objective basis for determining these payments than in the past.


Pillar 2 would remain for so-called “multi-annual” programmes, co-financed by Member States and with substantial discretion available for them to choose how the funds are applied.


While the funding arrangements are not new, the clear distinction between rural development and agricultural measures is being lost. Inevitably one wonders whether a major driver behind this desire to define the pillars by their funding is the potential need to cut CAP funding in the future.


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INCOME STABILISATION


The Commission’s proposals contain the suggestion that an “income stabilisation tool” could be used to “compensate for substantial losses of income”. This concept was explored at the meeting by Jesus Anton, senior economist with the Organisation for Economic Cooperation and Development, who has looked at such devices around the world for a study to be published next year.


The AgriStability programme in Canada is an example of the kind of model that the Commission may have in mind. The purpose of such programmes is to cover threats to farm income from “marketable risks” that lie between “catastrophic risks” caused by, for example, major disease outbreaks or extreme weather, and the “normal risks” that are accepted by farmers as inherent in agriculture.


To insure against “marketable risks” it is likely that funding contributions would be drawn jointly from the EU, Member States and the farmers who chose to participate.


Payouts could be triggered by critical thresholds based on crop yields or weather events, or they could be based on the submission of information by farmers. There are obvious problems with the last approach because of delays in submitting the information and receiving the payment, and the potential for “moral hazard” in relying on the information provided.


The advantage of these programmes is that they provide income support when it is most needed, as opposed to the Single Payment, which is given to farmers in equal measure in good times and bad.

Dr James Jones is principal lecturer in farm management at the Royal Agricultural College and chairman of the executive of the Agricultural Economics Society