A typical CAP compromise

The Irish Presidency offered an alternative to the European Commission’s proposals on the convergence of CAP direct payments within member states at Monday’s Farm Council, and it seemed to go down well with most of those in attendance reports Agra Europe.

The Irish proposal, that would only require member states to move partially to uniform area-based direct payments by 2020, was backed by a majority of governments at the meeting, although Farm Commissioner Dacian Ciolos made it clear he opposes the plan, criticising it for a lack of 'ambition'. He has a point, as it is a typical CAP compromise on the lines of 'make me pure, but not yet'.

All member states are to move towards a uniform payment per hectare at national or regional level by the start of 2019, the European Commission said in its CAP reform proposals, with a transitional period to apply up to 2018. But many member states feel this suggestion is too drastic and the consensus seems to be that a slower pace of transition is required.

CAP reform assessed

Here is a thoughtful and detailed look at the CAP reform proposals from the slow food movement: Slow Food

In particular there is a detailed consideration of the greening proposals. Their general view is that the proposed reforms do contain some significant gains for sustainability.

CAP budget reduced in size

The EU Council finally reached an agreement on the Multiannual Financial Framework (MFF) after marathon talks last weekend and it did not make for good reading for those who wanted to see an increase or real terms freeze in CAP spending reports Agra Europe.

The CAP budget agreed for 2014-2020 will be nearly €16 billion below what the European Commission wanted at €362.79bn − €277.85bn for Pillar One and €84.94bn for Pillar Two (P2). This is provided it is passed in a straight Yes/No vote by the European Parliament – the first time this has happened – as mandated by the Treaty of Lisbon, which came into force midway through the current 2007-2013 MFF period.

Under the Council agreement, rural development spending will be €7.03bn less than proposed, but the blow is to be softened for many member states, who are to get a ‘special’ P2 envelope as well as their share of the remaining P2 pot.

What this represents is the first time a CAP budget has been reduced in size but also an unparalleled degree of flexibility for member states over how they shuffle the financial resources dealt to them. However, no member state is going to escape the fact that restrictions on agricultural subsidies and state spending will be in place for the next seven years at least as the CAP enters an age of austerity.

Sterling fall boosts farm incomes

The weakening of sterling against the euro over the past four months potentially boosts UK farmers' single farm payment subsidies by £240m. For every 1p/euro change in exchange rates, the UK's single farm payments alter by around £40m. SFP accounted for around 15 per cent of UK farm incomes and can be an even bigger slice of profits. For example, over half the profits at Cooperative Farms, the country's biggest farmer, are down to SFP.

Currency fluctuations also affect market prices with a 1p weakening against the euro adding £200m to UK farmers' total income. For example, a farmer producing a typical wheat crop should get about £18 a hectare more from wheat sales with the euro worth 6p more. That's nearly ten times the impact on that farm's SFP.

The downside is that inputs such as feed, fertilisers and sprays could now be 7 per cent more expensive in sterling terms, if all the currency effects are passed on. Machinery could also be more expensive.

France gives some ground

France, the EU’s biggest beneficiary of CAP funds, had previously been in favour of opposing to any cuts to the share of CAP spending and instead favoured a freeze at 2013 levels in nominal terms (meaning a real terms cut) – a view supported by other member states such as Germany, Spain and Italy. However, President Francois Hollande now appears ready to accept a reduction after addressing the European Parliament this week and claiming that his main priority for the summit is to ensure 'expenditure levels that preserve our common policies'.

CAP spending 'will be reduced' compared to the European Commission's spending proposal, he conceded, adding this will provoke 'difficult restructuring for a sector that is essential [for France]'. Hollande’s speech could well pave the way for an agreement between member states and signal that a compromise agreement is there to be had. Whether it will be enough to appease those states looking for deep budget cuts such as the UK, Sweden and the Netherlands remains to be seen.

France’s apparent move away from its pledge to fight for a nominal freeze in the CAP budget has not gone down well with farming groups in the EU, with umbrella organisation Copa-Cogeca demanding a freeze at a 400-strong meeting in Brussels on Wednesday.

A good survey of French interests, and changing perceptions, of the CAP can be found here: France

Is a CAP deal possible?

The next key phase of the CAP negotiations occur in the context of the budget negotiations at the EU summit on 6/7 February with spending on agriculture remaining a major stumbling block. A further summit is due in mid-March. The Irish presidency needs a deal on the budget agreed by the Council and Parliament by the end of March if it is to have any hope of securing a substantive CAP deal by the end of June

The recent vote in the European Parliament agriculture committee was a first step towards a CAP deal, although if it doesn't like what eventually emerges then the Parliament can veto it. It should be noted that the committee backed capping of support at £250,000 with payments reducing on a sliding scale after £125,000 which will hit many farms in the UK.

Some are concerned that the proposed extension of discretion to member states (and regional governments) in many areas of the CAP will create more of an uneven playing field, undermining the single market. Others would argue that such discretion is not only necessary to make reform politically palatable, but also reflects the geographical diversity and range of challenges encountered in what will soon be an entity with 28 member states with very different agricultures.