Use the energy of your opponent to your own advantage. That is the beginners’ lesson in martial arts. But farm interests dug in their heels in the recent negotiations over reform of the EU’s Common Agricultural Policy (CAP) and resisted pressures for change as hard as they could. In an impressive demonstration of power, first at the European Parliament and then at the Council of Ministers, they managed to water down the already modest reform proposals brought forward by the European Commission. This victory may well turn into a defeat.

... time is ticking against conservative farm interests.

What farm interests did not want to recognize is that the review of the EU budget is picking up steam. Just a week earlier, the European Commission hosted a conference to present the results of the civil society dialogue and scientific reports conducted as an initial step of this review. Unsurprisingly, the CAP stood out as the main target of criticism: Stimulating agricultural production and raising farm income is neither a policy priority for the future nor an area where EU spending creates additional value above and beyond national spending. This contrasts starkly with issues such as climate change and trans-European energy and transport networks where EU expenditures are deemed to contribute to key challenges that are not sufficiently addressed by member states. There are still some years to go until the new multi-annual budget framework for the period after 2013 will be fixed. However, time is ticking against conservative farm interests. First, the EU is exporting more and more high value-added food and now has an approximately balanced trade account in agricultural goods. This creates a perception of agriculture as a sector where markets should play and where successful entrepreneurs can flourish. Second, farmers encounter increasing difficulty in speaking with one voice. British farm federations have opinions different from those of their French counterparts, part-time and family farms have other needs than large farm enterprises, and farmers entitled to special payments – because they are located in mountain areas or comply with organic production standards – compete with those who only receive standard subsidies.

Third, France, which has historically been the main beneficiary and promoter of the CAP, sees its net-benefits shrinking. Its resolution to defend the existing CAP is thus likely to erode. Fourth, the progressive disclosure of the individual CAP recipients will provide ample material for news stories that excoriate the CAP’s perverse distributional impacts. Finally, the civil society movement against the CAP will gain strength. Interest groups of all sorts will feel an increasing appetite for draining money from the CAP to their fields of predilection.

The outcome of the budget negotiations may thus be a grand bargain: The member states that are net-contributors to the EU budget would attain an overhaul of the spending side with a strong focus on delivering European public goods. For the CAP, this could mean the end not only of the distorting subsidies that are coupled to production but also of the direct income aid based on historical entitlements and independent of current production decisions. Going even further, a grand bargain could re-examine the rationale for rural development and environmental payments. Most of them are not sufficiently linked to public goods. For instance, there may be good reasons to support environmentally responsible farming in the hills and mountains through a flexible scheme that corresponds to local needs. But it is hard to justify that significant shares of a country are declared as ‘less advantaged areas’ in which payments are granted with little consideration of the conditions on the ground. Many such payments are thus income assistance to farmers under a different label. Furthermore, EU subsidies frequently promote the provision of public goods whose value is essentially local, such as a diverse landscape or clean drinking water. These should (mostly) be financed by the member states that show greater effort at budgetary discipline and efficient implementation if the money comes from their own pocket.

In exchange, the net-contributors to the EU budget would give up the reductions in their contributions that they have obtained over time. This would enhance transparency and underline member states’ solidarity. Above all, the return to a strictly rules-based determination of a country’s financing share would avoid the disgraceful and paralyzing haggling over arbitrary exceptions.

A long-term oriented strategy would have been to shift money from production-stimulating subsidies and direct income aid to rural development and agri-environmental payments...

It might therefore have been smarter for farm interests to be conciliatory in the 2008 CAP reform. A long-term oriented strategy would have been to shift money from production-stimulating subsidies and direct income aid to rural development and agri-environmental payments; to strengthen the multifunctionality conditions attached to the remaining direct income aid, the so-called cross compliance with EU environmental, animal welfare, and health standards; and to link rural development and agri-environmental payments more closely to genuinely European public goods. This would have enhanced the public legitimacy of the CAP and lowered its profile in the budget review. The price to pay would have been some income losses up to 2013, at least for those farmers that receive few rural development and agri-environmental payments.

As things stand now, the EU is in for a big fight over the next budget framework. This is a chance to start from scratch. The important lesson to keep in mind is: Farm interests blocked serious reform in 2008 that would have enabled a smooth change towards responsible farm spending in the next budget framework. It will be up to them to cope with more drastic changes after 2013.