Friday, October 08, 2010

The devil is in the detail

This post looks at some of the more detailed proposals in the leaked draft Commission communication on the future of the CAP.

The Commission believes that the CAP should be continue to be framed around two pillars. The idea of a third pillar focusing on climate change had been floated, but is evidently not being pursued.

The difference between the two pillars is seen as one of payment structure with Pillar 1 made up mainly of annual payments to farmers and Pillar 2 beuing multi-annual in nature. Is this the right distinction? Or should Pillar 1 be about the economics of agriculture production, while Pillar 2 focuses on 'additionality' with a particular emphasis on improving sustainability?

The rejection by commissioner Ciolos of a single flat payment is upheld, but it is not clear how the question of equity between member states will be addressed. This is likely to be one of the most difficult political issues in the negotiations given that there are wide discrepancies between member states. Those who don't get very much at the moment will want a bigger slice of the cake and those who have a big slice will want to hold on to it. The only concrete option presented is moving towards an arrangement whereby farmers in all member states would receive a minimum share of the EU-average level of direct payments (about €250/hectare).

It is proposed that there would be a cap on payments to large farms. This would have an impact on competitiveness, as large farms tend to be more efficient. It would also particularly hit Britain, Germany and the Czech Republic.

What makes it worse is a suggestion to link payments to employment levels. In other words, a farm that was employing labour inefficiently would receive more support. This would certainly undermine competitiveness, but then the document as a whole tends to give lip service to that concept.

The proposals as a whole also increase complexity when there is supposed to be a move towards simplification. They would increase transaction costs for farmers and the already substantial costs of operating the policy.

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