Monday, March 22, 2010

How can direct payments be justified after 2013?

This is the question that former OECD trade and agriculture supremo Stefan Tangermann poses in a recent issue of Agra Europe. In effect the answer that the agricultural economist gives is that they can't be, although he is too canny to say that in so many words. But he takes each argument for the SFP in turn and demolishes it.

He points out that direct payments make up nearly three-quarters of EU expenditure on the CAP, equivalent to about one third of the Union's total budget. The argument that they are compensation for earlier reforms can no longer be used to justify their continuation.

What about the view that farm incomes lag behind incomes in other parts of society, which in fact is not necessarily the case? Then payments would have to be in line with the criteria for other income support policies. It would have to be means tested so that better off farm families received less. Moreover, payment would have to be higher in member states where the gap was greater which is not compatible with the idea of a level playing field in a single market.

What about the food security argument, the desire to safeguard a viable agriculture in Europe? Tangermann points out that empirical studies show that farm support is largely capitalised in land values. Where land is rented, most of the direct payments flow to landlords. If support was eliminated, 'Land rents will adjust and farming continues.' This perhaps reveals an economist's faith in automatic adjustment in functioning markets. In fact adjustment would probably only occur after a time lag and then not fully. That delay could be cricial for some farmers.

What about enhancing competitiveness? Tangermann points out that competitiveness depends on productivity, know-how, product quality and the like. Education, training, extension services and research and development are the policies that help, not per-hectare payments.

What about the argument that environmental and other standards are more demanding in Europe than other parts of the world? Tangermann notes, 'Research has shown that they differ very much from sector to sector within the farming industry, but also from farm to farm. Overall, though, any such extra costs are relatively small, certainly much smaller than the level of payments currently granted to EU farmers.'

What about cross-compliance? Most of the requirements under cross-compliance would have to be respected anyway: 'Justifying payments on these grounds is akin to granting payments to all car drivers, which are then claimed back from drivers exceeding speed limits.'

So Tangermann concludes that it is doubtful whether any credible justification can be developed for direct payments. But when he gets on to political ground is touch is less sure. Having a good case matters, but there is also a lot of raw power politics surrounding agriculture with many member states willing to spend political capital to defend their farmers. Tangermann says that 'Europe's taxpayers are keen to know why they are expected to finance such payments', but I see little evidence of such interest. Hence, it is possible for agricultural lobbies to mount 'business as usual' arguments with little effective challenge.

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Blogger Adarsh Rao said...

Invitation: Online debate on India-Brazil- South Africa (IBSA) Policy Dialogue Forum

In partnership with the Ideas for Development blog, the International Policy Centre for Inclusive Growth (IPC-IG) is launching an online debate that will contribute with inputs for the forthcoming IBSA Academic Forum, which will be hosted by IPC-IG on 12-13 April in Brasilia, Brazil.

We invite you to participate in this discussion and reflect about the following issues:

- What is the role of the emerging countries in shaping world politics?

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We also invite you to visit the IBSA Academic Forum website, where you can find interesting papers, resources and breaking news. Visit: http://www.ipc-undp.org/ibsa

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