Leaked CAP2020 Proposals: Reading the Runes

The fortifications around the old CAP are being lowered and we are starting to witness the birth pangs of the new one. The leaked DG Agri Communication on the future of the CAP is not the most transparent paper and has been criticised from several different sides – not perhaps itself an unhealthy sign. However, beneath the sometimes conflicting signals there is a sense of clearer objectives than the present policy and some willingness to tackle the shibboleths that have constrained progress for so long. Within the paper, there are some important footholds to build on, one of the most significant being the potentially bold proposal to green Pillar One. However there are also some notable weaknesses, for example the lack of zest for a strong Pillar Two and an apparent downgrading of environmental priorities within it. Now both courage and clarity will be needed from all the European institutions, including the European Parliament, less experienced in this particular game, to bring these initial proposals to a policy that is consonant with the very considerable challenges of the next decade.

Objectives and Architecture

The DG Agri paper rehearses a number of reasons why a reform is needed, highlighting issues of food security, the environment and climate change and stressing the need to address the diversity of environmental, social and economic and land management situations in different regions of the EU-27. This is constructive. Unfortunately, but not surprisingly, it skirts round the critical issue of the weak rationale for the current direct payments. In an age of austerity and focus on EU value added, this is clearly one of the most compelling arguments for change.

The paper sets out three strategic objectives for the future CAP:

  • Viable food production;
  • Sustainable management of natural resources; and
  • Balanced territorial development

These correspond to the challenges highlighted and help to move the policy forward. However, if the CAP is to achieve these in practice, a suitable set of policy instruments will be required, including a strong and effective rural development policy. The present preponderance of untargeted direct payments within the CAP is not fit for this purpose and the paper makes no serious effort to argue that it is. In this sense the door is wide open for change. In proposing a new architecture however, the paper draws an unexpected budgetary logic to reposition the role of the two pillars. Annual non-contractual payments of different kinds are gathered in Pillar One, with multi-annual contractual payments sitting within Pillar Two. This is a rather awkward distinction. Leaving aside budgetary considerations, which are not spelled out in the paper, it would seem to make more sense to frame the difference in terms of the role of the Pillars in meeting the objectives. For example Pillar One could comprise ‘measures that can deliver objectives across the farmed countryside’ and Pillar Two focus on ‘targeted measures for achieving specific objectives in specific places’.

The CAP Budget The paper asserts that public support for the agriculture sector and for rural areas needs to be maintained. This is a core argument. However it requires further development and the paper has missed an opportunity to spell out the rationale for the expenditure of public money more explicitly. For example, there are clear references to the need to deliver public goods, especially on the environment, but the justification for the use of public money for other objectives within the paper are less clearly articulated. In relation to the environment, it is apparent from work within IEEP and elsewhere that very considerable sums are required to provide environmental public goods in Europe. Even if other ambitions were to be scaled back or to prove relatively inexpensive, there is a need for a substantial budget for well designed and targeted policy measures in rural areas. Quantifying the scale of need more precisely would help to bring focus to a budget debate in which a range of reductions in CAP expenditure are being thrown about by different players with little sense of what is required to deliver key objectives.

Grappling with Distribution

The proposals for direct payments are somewhat opaque and require considerable interpretation. They start with a clear and positive message that redistribution, redesign and better targeting of support is needed, with income support and the provision of “basic” environmental public goods the key goals. This would seem to imply that a significant redistribution of support is needed both between farms as well as between Member States. This is critical if expenditure is to match the objectives. Without it there is no possibility of a serious targeting of support on the new priorities. However, the text only refers to reaching “a more equitable distribution that reflects, in a pragmatic, economically and politically feasible manner, the declared objectives...” This could be understood as an early surrender to the demands of the Council. Undoubtedly some pragmatism is required. Nonetheless, the distribution issues needs to be confronted head on.

The point, surely, is that a significant re-distribution would arise from meeting diverse needs in different parts of Europe in an effective and efficient way. This would lead to a new pattern of support which in practice could be expected to benefit many of the less affluent Member States in central and southern Europe where both environmental and social challenges are most concentrated. It may well have the effect of reducing the large discrepancies between old and new Member States which, understandably, have led to calls for greater equity. There is an opportunity for the Commission to defend the principle of equal treatment between farms and Member States under objective criteria and to reject a simplistic equity, whereby there are similar payments throughout Europe detached from precise objectives. The paper stresses the need to ‘limit the gains and losses of Member States’ which is realistic in the short term but should not deflect consideration of a more rational outcome to be worked towards over time. The sensitivity of this topic will not diminish but the Commission must be encouraged to press on, following the logic of its own argument. Indeed it would seem from recent press coverage, that support for a more significant redistribution between Member States including more focus on environmental and competitiveness priorities is growing. The Polish government is now reported as arguing for direct payments to be reduced in size, and the Pillar Two budget increased.

Greening Pillar One

The principle of greening Pillar One is the most important innovation in the paper. It must be welcomed, but only if it sits alongside an effective and adequately resourced rural development policy. The text is somewhat unclear on what the proposals for direct payments might mean in practice and this is worth exploring further. It appears that the present direct payments would be segmented so that support would be derived from the combination of a flat rate basic payment, at a uniform rate within a Member State, and a number of additional payments which not all farmers would receive. The basic payment would be subject to a ceiling per farm and to cross compliance. This in itself would amount to a significant redistribution since the flat rate payments would be severed from historic receipts and farms with low claims per hectare under previous entitlements would be winners.

The greening occurs via what appears to be a mandatory second tier of payments for relatively simple, one year only, agri-environment actions. It is not clear exactly what is meant by the term ‘mandatory’, but presumably it implies that all farms with relevant characteristics (such as an area of permanent pasture or area under cereal production) would be obliged to participate in the relevant action. Whether this is a major change in Pillar One or a very light greening depends on the design and detail. Two points are especially important. If the payments are associated with binding requirements, so that farmers who opt out of the additional payments also lose eligibility for the basic income support, then a powerful change in the design of support is being proposed. Its substance would depend on the different actions all being mandatory rather than being treated as a menu, whereby farmers could choose between options. The scale of ambition also will be judged by the proportion of the total direct payment to be accounted for by the environmental “tier”. To be credible the additional payments proposed need to represent a significant share of the budget - less than 30 per cent would represent a distinctly light greening for many observers.

If these conditions were met, a real shift towards public good provision would have occurred. A serious debate will be needed on the design of simple, contractual, annual payments, what they can achieve and how they will be monitored as well as more discussion of the most appropriate options. Of those proposed, ecological set-aside has the potential to deliver the widest range of additional environmental benefits across the farmed landscape, by instigating a real change in management practices, as long as it were appropriately designed and implemented. The other options for supporting the management of permanent pasture, the use of green cover and crop rotations could all have a useful role in the delivery of environmental public goods. They would be likely to be more significant in achieving a redistribution of expenditure towards farms already following more sustainable practices than in achieving large scale changes in management in the majority of Member States however.

The question of providing adequate support for lower input farming of high nature value (HNV) is not answered in this paper. Continued support for HNV farming systems and practices is essential if the important public goods that they provide are to be secured into the future. To achieve this, a good balance between first and second Pillar measures is needed. This could build on the contribution that will be made to HNV farms through support for permanent pasture and the new income support payments for farms in areas with “specific natural constraints”, in place of the LFA measures, currently in Pillar Two. Issues of how to define ‘natural constraints’ arise, however, with implications for exactly what their purpose would be. Nor is it clear whether payments would be flat rate or calculated on a more regional or farm level in response to different local conditions. Some tiering and targeting could be envisaged here, to tie payments to core objectives more closely - for example a higher payment on farms where conditions did not permit stocking densities of more than a certain level.

The paper states that payments would be confined to “active” farmers, which raises interesting questions about how these would be defined. Since most payments would be decoupled it would be necessary to avoid creating new obligations to produce food, provided that GAEC standards were being respected.

Rural Development and Pillar Two

With respect to rural development there is a disappointing lack of signals to suggest that this will become a larger and more vital component of the CAP, even though more is being asked of the second Pillar. Both the list of themes is expanded, with a new emphasis on innovation for example, and so is the number of measures, with a risk management toolkit added to the menu, clearly mirroring the objectives of the EU2020 strategy. In so doing, however, the role of Pillar Two in providing environmental public goods is considerably downplayed – with not even a mention given to support for agri-environment actions, a cornerstone of EU rural development policy since 1992. The removal of the LFA measures would help to create more room within the rural development budget for some of these additional measures. This would be especially necessary since the new priorities that have been added, particularly innovation, could potentially divert large sums from the existing rural development priorities. The requirement for and the benefits of the objective and outcome led approach of Pillar Two, accompanied by strong programming, targeting and monitoring and evaluation is also absent from the paper. The need for a strong Pillar Two to incentivise actions to meet EU environmental targets will not diminish even with a ‘greener’ Pillar One. The necessity of complementing the purely annual payments in Pillar One with more targeted and programmed measures in Pillar Two, therefore, needs considerably more emphasis than the present text affords.

The implication of the paper is that the current measures in the four axes would be targeted in a different way by setting quantified targets first at EU and then at programme level, to achieve a more outcome based result. This is desirable in principle, especially since the objectives of many programmes, and indeed some measures are rather vague at present. Certain objectives, such as reducing greenhouse gas emissions from a particular sector or area, could lend themselves well to this approach, although the challenge of effective monitoring and participation by Member States should not be discounted. Others, such as rural capacity building or innovation, could benefit from sharper objectives. For example, expenditure on innovation could cover a multitude of activities not all of which would be desirable or meet the overarching objectives for the CAP set out in the paper. On the other hand, there are considerable win-win opportunities for promoting ‘green innovation’ that could help to improve the competitiveness of the sector as well as delivering environmental public goods, for example by supporting investment in green technology or increasing resource efficiency.

And so to the Reform Options

The paper concludes with three options, echoed a week later in the long awaited EU Budget Review (Com (2010) 700 final). The Budget Review presents these as reform with different degrees of intensity. This of course is a time honoured ploy by the Commission to sweeten their preferred option by sandwiching it between relatively unappealing alternatives. However the danger here is that the option of minimal reform has not been dismissed with sufficient authority and will appeal to many members of the Council, while the third option has been dismissed out of hand. Option 2 could be bolder than many have recognised and the Commission deserves credit for this but it needs to be developed further, not flattered by false comparisons.

1 comment posted

  • Anne Zammit November 28th, 2010

    Thank you for this interesting and sober analysis

PUBLICATION DATE

10 Nov 2010

AUTHOR

IEEP

FURTHER INFORMATION

The Institute for European Environmental Policy coordinates CAP2020. It is an independent not for profit institute which undertakes research in a number of policy areas including agriculture and rural development.


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