Study on Winners and Losers from CAP Reform

Reform of the Common Agricultural Policy (CAP) is a key challenge for the EU. But although the economy and ecology would benefit, reform is difficult to attain. Those Member States who get a large share of the pie believe that they can hold on to it forever, and those who get less want, above all, to enlarge their share. As a result of this optimistic greed, most agree that the subsidy cake should be big. To find out who really stands to win – or to lose – from CAP reform, the European Centre for International Political Economy (ECIPE) has estimated how future CAP subsidies might be distributed in a new working paper. Such transparency is timely as the Czech government is seeking to agree Council conclusions on the future of the CAP next week (see background note). The study reveals surprising differences between the negotiating positions that countries traditionally adopt and the payments they can expect from reform.

To attain a more reasonable distribution, Member States will first have to agree on the objectives of the CAP.

It is embarrassing that the EU’s distribution of more than 40% of its budget to the Member States has nothing to do with policy objectives. Subsidies do not go where the need to help poor farmers or to protect the environment is greatest. Their distribution can only be explained by national self-interest, power politics, and EU rigidity.

To attain a more reasonable distribution, Member States will first have to agree on the objectives of the CAP. The guiding questions should be firstly, where does agriculture create value for society that is not remunerated on the market? And secondly, where is a European interest at stake that justifies EU subsidies rather than national spending? The answer is clear: EU subsidies are necessary to protect the environment. For instance, the protection of biodiversity requires an EU approach because wildlife cross borders, as does biodiversity-threatening pollution. This is most evident in the case of migratory birds that need protection all along their routes of travel. Other examples include the fight against climate change and flood control.

The next step is to define criteria for the distribution of CAP payments that correspond to the environmental objectives. At the simplest level, countries with a large agricultural area can be expected to need more money to preserve landscapes and promote environmentally-friendly farming. However, not all landscapes have the same environmental value. Therefore, countries should be rewarded if they commit to respecting the strict environmental safeguards of the EU’s Natura 2000 legislation. The more terrestrial areas they grant Natura 2000 status to, the more support from the EU they should get. The same rewards should apply to organic farming areas. Forest land also deserves attention. The importance of responsible forest stewardship is increasingly being recognized. Member States with significant areas of forest should receive additional payments to enhance the environmental value of their forests.

The results [of some CAP reform scenarios] show that some of the countries that defend the status quo would actually gain from reform.

The final step is to weight each of these criteria for the distribution of CAP payments. Moreover, remaining payments that are not targeted at environmental protection, such as the Single Farm Payment, need to be distributed according to a redefined rationale. ECIPE has calculated several scenarios for the post-2013 CAP.

The results show that some of the countries that defend the status quo would actually gain from reform. This is especially striking in the case of Spain, which would reap the greatest absolute gains of all Member States. Finland would get the third highest increase under all scenarios just after Sweden and Latvia. For both countries, the benefits would be greater, the bolder the reform. To a lesser extent, this also applies to reform-averse Portugal and Austria.

The Eastern European Member States are very heterogeneously affected. The Baltic republics stand to gain substantially from CAP reform, most so under the ambitious multifunctional CAP scenario. All other Eastern European Member States can expect to gain only moderately (except for Romania in a scenario that heavily compensates agricultural area) – or they even risk losing. The New Member States would therefore be served best by minimizing CAP expenditures in order to free up money for the EU’s structural funds. These European solidarity transfers from rich to poor states will go mostly to Eastern Europe.

The report by the ECIPE entitled 'Public Money for Public Goods: Winners and Losers from CAP Reform' is available to download here.

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PUBLICATION DATE

18 Jun 2009

AUTHOR

Valentin Zahrnt

FURTHER INFORMATION

Valentin Zahrnt is a Research Associate and Resident Scholar at the European Center for International Political Economy based in Brussels.