Wednesday, July 20, 2011

What does the budget mean?

Sophia Davidova, president of the Agricultural Economics Society, offers her assessment (reproduced from the AES Newsletter):

The Communication from the European Commission on the budget for Europe 2020 is now in the public domain. Does it answer questions such as: whether the CAP budget will be consistent with the vision for future CAP developments; will the direction taken in previous CAP reforms for incremental increases in the funding of Pillar 2 be maintained or there will be a U-turn to what I call a ‘counter-modulation' towards transferring funds from Pillar 2 to Pillar 1; and to what extent will the CAP budget be maintained in real terms? These questions directly target the core justification for the CAP. But if there is no strengthening of Pillar 2, this may undermine the public value of CAP expenditure as a response to the priorities of the European citizens for ecosystem services and rural development.

The budget for the CAP for 2014-20 in 2011 prices is €372 bn, plus €15bn for research and innovation. Year on year the budget for ‘Sustainable Growth: natural resources' will decrease in real terms - by 10% from 2014 to 2020. On the other hand, expenditure on ‘Smart and inclusive growth' (including competitiveness and cohesion) will increase by 17.7%. The allocations plainly assume 2% annual inflation to maintain the budget for both Pillars 1 and 2 constant in nominal terms. The decline in the share of the total budget taken by total CAP expenditure will continue, reaching 33% in 2020 (from 39% in 2014).

It is difficult to say if this budget is a victory for the supporters of CAP and in particular Pillar 2, which recent rumours preceding the decision suggested. However, the lack of political will to rebalance funds in favour of Pillar 2 means that the EU will hardly be able to tackle the enormous rural and agri-environmental tasks ahead - unless we believe that mandatory Greening of Pillar 1 will deliver significant environmental public goods.

The budget could not be anything else than a compromise with such divergent interests amongst the EU-27. Many Member States, not just the UK, have criticised it as too generous. There will be debates on the own resource proposals, and what happens to the adjustments and rebates. It is also worth remembering that there are disagreements on the CAP budget even within the UK between government departments, and between DEFRA and the devolved administrations. Although a compromise, there is no certainty that these are the budgetary outlays that will be decided and implemented, since the European Parliament and the Council will have their say on the Commission communication. Thus, the uncertainty continues.

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