Tuesday, October 30, 2012

It's not all Balls

The ploy by Ed Balls and Douglas Alexander to call for Dave Cameron to secure real cuts in the EU budget is a way of setting an elephant trap for the prime minister. They know if they were in office they would have great difficulty in securing such cuts given the stance of other member states. But it will give them another chance to score a few political points by portraying the Government as weak and incompetent, as well as increasing disarray on the Conservative benches.

So it's a smart tactical move. But once we get away from the partisan point scoring, they do have something interesting and important to say in their Times article. They point out that for all the fuss about Brussels bureaucrats, administration only takes up 6 per cent of the EU budget. £45 billion is sucked up by the CAP at a net cost to the UK of £1 billion a year (although we do get a budget rebate).

They argue, 'Although the butter mountains of the past are long gone, the need for reform is no less urgent. The CAP is an obstacle to international trade liberalisation, creates too few jobs and introduces distortions so that there is not a level playing field. The EU cannot afford this waste.'

They maintain. 'further reform of the CAP must not just be discussed but implemented.' If only. I think there will be some real cuts, but they will be mainly at expense of Pillar 2 expenditure which helps the environment and the rural economy. The blanket subsidies of Pillar 1 (the Single Farm Payment) will remain largely untouched.

There are a number of net beneficiaries of the CAP who will defend it to the last hedge row. But there is more to it than that. France gets less than it used to from the CAP, but for the French it is more than a question of the financial benefits, important though those are. It is also about a vision of Europe in which agriculture plays a central if often symbolic role. It is about a statist mode of government in which intervention in the market is seen as beneficial in the name of food security. Even though some are questioning whether France can continue to afford to allow 56 per cent of its GDP to be spent by the government, those attitudes are not going to change any time soon.

Interesting that Gisela Stuart, the Labour MP for Birmingham Edgbaston, thinks that Britain should contemplate leaving the EU: Stuart . Admittedly, she has been moving in a Eurosceptic direction for eight years or so and is now something of a maverick on the Labour benches. But she was born in Germany and is a particularly thoughtful MP. What she says needs to be taken seriously.

Where her argument is perhaps weakest is in relation to the possibility of a two-tier EU, although I think she is correct in her judgment that a negotiation would not deliver that much in terms of a repatriation of powers (certainly not an exit from the CAP). This is not one of the usual supspects and it may be an early indication of a real shift in the political climate.

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Monday, October 22, 2012

Oil seed rape loses its glow

Fewer oil seed rape fields may be seen in Britain following adjustments to EU policy. It's quite a complex story, but there are two big lessons to be learnt from it. First, individual planting decisions on farms are directly affected by the EU policy (although there are agronomic advantage to oil seed rape - known as canola in North America - as a break crop). Second, well-intended environmental interventions may have unforeseen consequences that cancel out the advantages it was hoped that would be gained (although we are in contested territory here).

Back in 2008 it was agreed by the EU that as part of the effort to combat global warming, each member state should derive at least 10 per cent of their transport fuels from renewable sources by 2020. However, since then there has been renewed concern about global food shortages. Biodiesels are only one and by no means the most important factor in such shortages: but their use can be influenced by policy decisions. Environmental groups have also argued that the EU policy encourages farmers in countries such as Indonesia to cut down forests that act as carbon sinks to grow crops for use as fuel in Europe, thus making global warming worse.

The canary yellow fields are a major feature of the summer landscape in Britain and have even become a niche attraction for Japanese tourists. They also contribute to biodiversity as the flowers are favoured by pollinating bees and birds nest in the stems.

UK rapeseed production rose 70 per cent in the decade to 2011, amounting to roughly 40 per cent of the land planted with wheat. Roughly one-fifth of British rapeseed oil production goes into biodiesel. Farmers are now likely to switch into wheat which, of course, is in a sense the intention of the policy modification.

There is, however, fierce resistance from the biodiesel industry to the draft proposals who are crying foul. They invested heavily in refining capacity based on the 2008 rule change.

The Commission has, in fact, watered down its original proposals, but has only succeeded in upsetting both camps. Environmentalists claim that the proposals do not go far enough, the industry that they go too far.

Some of this is very technical, but food crop-based biofuels are still to be banned from contributing more than 5 per cent of transport fuel consumed in the EU. 'We are sending a clear signal that future increases in biofuels must come from advanced biofuels. Everything else will be unsustainable,' said EU Climate Commissioner Connie Hedegaard when unveiling the proposal in Brussels.'

Rob Vierhout, secretary general of advanced biofuel producers ePure went as far as to claim the Commission is 'NGO-driven' but there was little evidence that there was a great deal of satisfaction from that side either. 'If this proposal becomes law, biofuels more damaging to the climate than crude oil will still be used to meet green transport targets,' Greenpeace’s EU transport policy director Franziska Achterberg claimed.

Anti-poverty charity ActionAid called the proposed 5 per cent biofuels limit on food-based biofuels an 'important symbolic first step,' but called for a total ban on food and land-based fuels and fired back at the biofuels sector by accusing the Commission of buckling to industry pressure by taking the 'heart out of the proposal'. The Institute for European Environmental Policy was similarly scathing about what it saw as a Commission climbdown on in the face of industry pressure while welcoming the biofuel cap

Perhaps what one can say is that government interventions of this kind, however well intentioned, are always fraught with the risk of going wrong and end up displeasing everyone. One of the commentators on the industry side said that if the Commission pursued their line they might as well scrap the CAP. Be careful what you wish for.

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Friday, October 19, 2012

Are UKIP wrong about the CAP?

Stuart Agnew MEP, the UKIP agricultural spokesman, has said the EU 'has become far too big to have a CAP.' There are certainly those who think that the EU is too geographically diverse to have a 'one size fits all' policy, although in practice it is not really like that. He also criticised farmers who receive subsidies for wind turbines and solar panels on their land as 'robbing the poor to pay the rich.'

European Commission official and agricultural economist John McClintock was trotted out to defend the CAP and said that scrapping the CAP 'could lead to food riots like we have seen in other parts of the world like Haiti.' This is scaremongering of the worst kind, but defenders of the CAP have seized on the food security card.

Mr McClintock is described as an agricultural economist, but he doesn't seem to have much love for the market mechanism. He said, 'There are still people who dream about the free market in agriculture, but the reality is that it could be socially disastrous.' Socially disastrous for whom, one has to ask?

Mr McClintock said that scrapping the CAP would mean that many farmers would not be able to survive. But is getting rid of marginal and inefficient producers necessarily a bad thing? He also argued that food prices would go up, but this could be offset if the EU lowered the high tariff walls it erects against much of the rest of the world. Defenders of the CAP argue that this helps the EU to be self-sufficient, but is it such a bad thing to import from countries well suited for agricultural production? Anyway, if one is concerned about self-sufficiency, perhaps there ought to be renewed attention to the quality of agricultural land when development takes place?

He also said that one of the main objectives of the CAP was to ensure that farmers had a comparable income to those in cities. Fair enough, but there are many people in rural areas who are not farmers and suffer from relative poverty. Surely this is a case for income supplements rather than subsidies to agriculture?

Similarly he argued that the CAP kept the countryside alive. But that is a case for transparent subsdies to keep the land in good heart and environmentally sustainable, not for blanket subsidies like the single farm payment.

The CAP costs €50bn a year and hardly represents value for money. 40 per cent or more of the EU budget represents a high opportunity cost. But, of course, we are where we are and withdrawing subsidies overnight would hit the rural economy hard. So it is incumbent on those who would withdraw from the EU to say what they would replace the CAP with in terms of domestic policy.

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Tuesday, October 16, 2012

Thinking about the unthinkable

Fifty years ago saw the start of the Cuban missile crisis. It was a frightening time if you were fifteen years old, as I was, and whatever else one says about Jack Kennedy, one has to admire the way he managed the crisis and resisted the calls of the hawks for early military action. Now it's all old history and it was announced today that two of the Cold War missile sites have been given listed status.

Nuclear war strategy was referred to then as 'thinking about the unthinkable'. Perhaps we also now need to start thinking about another kind of unthinkable, Britain leaving the European Union and what sort of domestic agricultural policy might replace the CAP. Whatever one thinks of British membership of the EU, few would mourn leaving the CAP, but British farmers would be worried about what would take its place. No doubt some contingency thinking is already being undertaken.

My hunch is that if there was a straight yes-no choice, the majority of British voters (although perhaps not in Scotland) would vote to leave. There is some evidence to support this. Peter Kellner of YouGov has written an interesting contribution on underlying attitudes for the LSE European Politics blog: Kellner

In essence the message is that there are three attitude clusters in the electorate in terms of attitudes to the outside world and only one of those could be largely relied on to vote in favour. Kellner thinks that fear would shape a lot of decisions. Of course, that could be fear of the consequences of staying in or fear of the consequences of leaving. Much would depend on the campaign.

Of course, we may never get to a yes-no vote. Dave Cameron does not like the EU, but he does not want to withdraw. His favoured scenario is to 'renegotiate' after the next election when the Conservatives might have an overall majority. He would then put the renegotiated deal to the electorate. Harold Wilson took the stance of 'no entry on Tory terms' before the 1975 referendum and got a few goodies out of the EU, but essentially we stayed in on the terms agreed by Ted Heath. Dave would probably get some concessions out of the EU, but they would fall short of what Eurosceptics wanted.

Hence some Eurosceptics are calling for a yes-no referendum at the time of the next election. Conservatives are worried about a UKIP victory in the 2014 European Parliament elections, a more than likely scenario, and then losing votes to them in the following general election.

How this will all play out depends on a wide range of different factors affecting Conservative Party politics. If Labour wins, there is a different scenario (although if they were dependent on Lib Dem support, there would be another one again). Ed Miliband always jumps on any bandwagon that comes along, although usually what he does is call for a public inquiry rather than a referendum. There wouldn't be any judges left to staff the courts if all his requests were granted. However, Miliband could promise some sort of referendum, although its timing and nature would probably be left vague.

Anyway, the point is that Britain leaving the EU is a sufficiently serious possibility to start thinking what we would do then and that is what I plan to do over the next few months, starting with the nature of agricultural policy betweeen the end of the Second World War and our accession to the EU.

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Monday, October 15, 2012

Dancing towards convergence

EU Farm Commissioner Dacion Ciolos is said to be resigned to the fact that the current proposal for internal convergence of direct aid payments will need to be watered down in order for a compromise to be reached, reports Agra Europe.

'It is no longer acceptable for two hectares of hill land in the same member state with the same agronomic potential to account for differences of €100 to €600 and, in some regions, even more,' argued the Commissioner at the 2012 Congress of EU umbrella farmers union Copa-Cogeca last week. 'Over the period 2014-2020, a genuine convergence campaign is quite simply unavoidable if we want to still be credible.' One might add that there are a lot of things about the CAP are incredible, but that hasn't stopped them remaining in place.

There appear to be two groups of member states working on alternatives to the Commission’s plans for internal convergence. Some 40 per cent of a country’s Pillar One envelope would be used for flat-rate aids in 2014 under the current proposal, but critics claim this will lead to subsidies being moved away from more productive areas.

But then, of course, there has always been confusion about whether the CAP is there to boost the competitiveness of EU agriculture or act as a form of social policy for marginal farmers. In practice it is more of the latter, but a remarkably inefficient one in terms of reaching its target at minimum cost.

The losses and gains incurred by farms due to the transition should be limited, Ireland, Spain, Lithuania, Denmark, Portugal and Italy are said to have argued at the recent Management Committee meeting. Under a proposal tabled by the six, countries would be allowed to ring-fence ‘greening’ payments for individual holdings rather than on a national or regional basis – cushioning the impact for livestock farms in particular.

Meanwhile, Austria, Belgium, the Czech Republic, Hungary and Slovenia are pushing for member states to be able to apply a flat rate of national or regional subsidies in 2021, rather than 2019. Warning against what they say would be a “profound redistribution” proposed for some countries, governments would be able to choose between three alternative convergence models.

Only a handful of liberally-minded countries are understood to have defended the Commission’s proposed timetable for convergence, albeit conceding that some degree of flexibility is necessary.

The issue is likely to be a tricky one of the agenda of the Farm Council in Luxembourg later this month.

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Thursday, October 11, 2012

France and Germany do their deal

Long-term observers of the CAP know that any agreement between France and Germany can often shape the direction of the reform process. Even with many more member states, this still remains true. Earlier this week the two countries issued a joint statement calling for a freeze at 2013 levels in nominal terms Agreement

Calls for a nominal freeze in the budget, which will still mean a decline in real terms, have been growing in recent months and around half of governments voiced their support for the Commission plan at a General Affairs Council late last month.

The country’s two agriculture ministers – France’s Stéphane Le Foll (rather superior and disdainful in a typical French mode) and German counterpart Ilse Aigner – came to the agreement after meeting in Berlin. They cited the 'importance of the CAP for growth, employment and the environment and innovation in rural areas along with Europe's role in ensuring food security worldwide', in their statement. In other words, the traditional rather general but fine sounding justifications of a dysfunctional policy.

Their rejection of any reduction in Pillar One allocations was also notable taking into consideration the fact that Germany is the biggest contributor to EU funds, while France is the biggest beneficiary of direct aid payments. Germany and France join the likes of Austria, Belgium, Finland, Greece, Ireland, Luxembourg, Malta, Portugal, Romania and Spain in opposing cuts, leaving member states such as the UK, Netherlands and Sweden seeking a more austere budget with a reduced prospect of success.

Of course, British prime minister Dave Cameron is under heavy pressure from within his own party to take a tough line in budget negotiations. Indeed, Dave is no fan of the EU and reflects the traditional British distaste for the CAP in particular. Vetoing the budget would go down well at home, but it would also mean that the EU would revert to annual budgets determined by qualified majority voting, reduced the influence of Britain and its allies.

Meanwhile for an authoritative account of tensions between member states and the European Parliament over the CAP, this blog post by Christilla Roderer-Rynning is recommended: Parliament

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Monday, October 01, 2012

Old divisions rear their head

Those who like to emphasise the way in which 'discourse' or ideas can shape policy have been able to trace significant changes in the debate about the Common Agricultural Policy, but this has not been reflected in real reform. Indeed, older discourses have been revived with the debate about food security. Last week's Farm Council saw a revival of the old debate between advocates of a more market oriented policy and those who want more subsidy and intervention.

There was some progress on CAP reform with most EU governments backing an overhaul of the CAP's 'less favoured areas' (LFA) scheme, but there was division over how best to deal with market shocks in future.

Most governments agreed that the overhaul of the LFA scheme should be based on new 'biophysical' factors but added that the backing would be dependent on them getting considerable flexibility to adapt the criteria and parameters to their territories, with French farm minister Stéphane Le Foll, whose country has been resistant to the overhaul, particularly vocal on this point.

A majority also agreed that member states needing more time to make the transition should be allowed to extend their deadline to December 2015, from the original January 2014, but German agriculture minister Ilse Aigner, backed by Poland and Austria, questioned the plan and claimed that more than just 'fine tuning' based on a common EU framework would be needed.

A clearer dividing line was found over how the EU should deal with agricultural market volatility, with Greece and Ireland backing calls for a “political stance” on volatility, while the UK and Netherlands insisted that farmers' decisions should be based purely on the market conditions.

Ministers were discussing the European Commission's plans to update the CAP's traditional market management tools under the 'Single CMO' Regulation - namely public intervention, private storage and export refunds. The plans for 2014 onwards include the introduction of automatic tendering for public intervention for skimmed milk powder and butter as well as an accelerated procedure for private storage aid.

While many member states consider the Commission's plans to be sufficient, several called for market intervention to go further than the proposals and involve automatic updates to reference prices for public intervention. The divisions on this point were largely along the traditional lines of those who favour the ‘free market’ approach and more ‘interventionist’ supporters.

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