Monday, October 01, 2007

Capping SFPS is on the agenda again

Leaks from Brussels suggest that capping Single Farm Payments is on the agenda for the forthcoming Health Check. This was mooted at the time of the last reform and defeated by opposition from Britain and Germany who would have lost out the most.

The last set of proposals envisaged an overall ceiling, but this time reductions would be tapered to make them more palatable. There would be a 10 per cent reduction on payments about €100,000, 25 per cent off payments above €200,000 and 45 per cent off payments above €300,000. As an additional incentive, money saved by the 'capping' would stay in a member state and be added on to its national envelope for targeted receipts.

There would also be a lower limit on payments to save the transaction costs of payments to owners of horse paddocks or hobby farms. These tend to gum up the payments system and are not supporting anything that resembles a commercial farming activity.

Reducing payments to large-scale farmers, some of them members of Europe's royal and aristocratic families, would seem to be a no brainer. In a sense, however, it is penalising the more economically efficient farmers who are often better suited to compete in an international market. That being so, perhaps they should not have subsidies at all, but then no farmer should be receiving non-specific subsidies (other than a pay off in the form of a bond).

There is also a difficult technical problem. How does one define what constitutes a farm? Ownership of large estates could be subdivided among different companies. Lawyers have always been adept at spotting new loopholes in the CAP and they could be the real beneficiaries of these proposals. However, I doubt whether they would go through in the form suggested.


Anonymous said...

Well Sir,
quite intersting economic reasoning (well known I think). Anyway in my understanding agricultural policy is a social policy which should provide "equity" to farmers.
Why therefore should large estates which have scale economies not also get lesser money as their costs to fulfill the political targets (e.g. cross compliance) are naturally lower?
Yours sincerely

Wyn Grant said...

My response would be that agriculture is not - or should not be - a social policy. If farmers have low incomes, the way to deal with that is through income supplements not subsidies for farming. Although, if the returns are so bad, why carry on farming? Although I appreciate that it is difficult for tenants to exit.

Anonymous said...

Dear Sir,
probably again the question with the definition of what is a subsidy might be of interest. If one assummes that a subsidy is a payment for which nothing has to be done apart from being there, than regarding CC SFP is not a subsidy but a compensation for a complying to higher production standards.
Secondly I am quite sure that in understanding farming only as a business like producing shoes, computers etc. your argument is right. But what if not and those who argue that agriculture (and forestry & fishing) are not entirely businesses in a quite narrow purely economic understanding of that term?
yours sincerely

Wyn Grant said...

The cross compliance standards are not that stringent and were watered down from the original proposals, along with an audit system (although I thought that was over engineered). Farms do provide some environmental public goods and should receive subsidy for that. I think one of the problems in farming has been the tendency to regard it as a way of life rather than a commercial business and subsidies have underwritten that mindset.