The New CAP - The same but different

The Commission College debated for a long day before agreeing their proposals for the next Multi-Annual Financial Framework (MFF) late on Wednesday evening. The CAP (€372 billion) remains a sizeable element of the Budget but now accounts for a fractionally smaller share of the overall MFF cake than the Cohesion Policy (€376 billion). The two Pillars remain and the basic structure of the CAP is not radically altered although the formal objectives now reflect the priorities of Europe 2020 much more explicitly. Indeed promoting resource efficiency has pride of place in the new objectives along with 'smart, sustainable and inclusive growth'.

How direct payment within Pillar 1 will achieve this result remains unclear but the Commission has gambled a great deal on Pillar 1 and taken considerable trouble to defend it. There is a modest overall decline in CAP expenditure in real terms but this is much less than many people had expected. Two key market support measures have been taken out of the CAP and relocated elsewhere in the MFF including a €3.5 billion reserve for crisis in the agriculture sector. The large discrepancies between Member States in the scale of their direct payments will be reduced although there will still be a sizeable range in 2020. There will be a specific budget neutral and simplified form of support for small farms, scale unknown, partly to reduce administrative burdens.

The major innovation is the greening of Pillar 1 as proposed in the Commission’s November Communication. In future, 30 per cent of the direct payments 'will be made contingent on a range of environmentally-sound practices, going beyond cross-compliance'. No further details are provided. This is a significant share of the CAP budget and could result in some major changes of practice on a European scale if well designed measures are put in place and then monitored effectively. It is not clear whether farmers who fail to enrol in one of the new mandatory measures will risk losing the whole of their direct payments. This appeared to be the formula favoured by the three Commissioners (Ciolos, Potocnik and Hedegaard) in their letter earlier this year. If so, it will create a powerful lever within Pillar 1; if not many farmers may simply choose to opt out, especially if market prices are buoyant.

As expected the Commission has proposed that direct payments will be reserved for 'active farmers', another undefined group. Capping will apply to direct payments and, quite ingeniously, the Commission has proposed not only that farm employment levels could reduce the impact of capping but also that the proceeds would be injected into rural development as well as staying in the Member State concerned. All these innovations may help to increase the appeal of direct payments in a number of countries and in the European Parliament, despite the questions about their fundamental purpose and value for money.

The determined protests against the intended severe cuts in Pillar 2 have made an impact and the reduction is less than feared. Nonetheless, expenditure on Pillar 2 is scheduled to decline in real terms over the period. Scheduled expenditure for Pillar 2 in 2013 is currently €14.79 billion. If this level was to be maintained with no increase up to 2020 the total required would be about €97 billion. On this basis the cut to Pillar 2 in real terms amounts to about 7 per cent in constant prices. Furthermore, there appears to be a scheme to modify the CAP plumbing by introducing a two way valve whereby Member States can move resources between Pillars 1 and 2. So reverse as well as 'forward' modulation will be possible.

There is also the danger that those Member States which are less enthusiastic about environmental public goods will decide to devote a smaller share of their Pillar 2 budget to measures like agri-environment, Natura payments etc than they do at present. The Commission does not appear to be proposing a minimum budgetary ring-fence around these measures of the kind now protecting Axis 2. So questions remain about how far it will be possible to meet the environmental ambitions set out in the budget paper, including biodiversity mainstreaming and a minimum of 20 per cent of all funds to be spent on climate measures.

In response the Commission can point to the greening of direct payments, a major departure however vague. But the fact remains that many eggs are still in the Pillar 1 basket, which is much more difficult to direct at concrete, precise outcomes of the kind needed to deliver public goods.

PUBLICATION DATE

01 Jul 2011

AUTHOR

David Baldock