The CAP in review

The CAP will continue after Brexit, albeit with somewhat less money, but will needed changes be made, particularly in terms of 'greening'?   I give an overview here: https://www.europenowjournal.org/2020/11/09/the-common-agricultural-policy-an-overview/

This has attracted some attention on Twitter and I am grateful for the feedback received.   One comment was that 'Seems to suggest that nitrates have been addressed by the ND....if only that were true. There is large scale non compliance with the ND standards never mind the more ambitious water framework ones.' This is a fair criticism, I simply didn't have the word budget to deal with the issue in more depth.

I should have remembered that 'many years ago the OECD “Producer Subsidy Equivalent” was renamed the “Producer Support Estimate” because not all policy transfers are subsidies but some are payments for public goods.'

'Another quibble, but not so minor: at over 30% of its budget, EU expenditure on agriculture is called "substantial", because agriculture is only 1.6% of EU GDP. Unfair comparison: the whole EU budget itself is less than 2% of EU public expenditure.' I can see where this comment is coming from and it is not without validity, but agriculture still secures a disproportionate share of the EU budget.

EU lays down the gauntlet on biodiversity

The EU has set out a new biodiversity strategy.   When I have studied it in detail I will provide some analysis, but for now the summary can be found here: https://ec.europa.eu/environment/nature/biodiversity/strategy/index_en.htm

The full Communication can be found here: https://ec.europa.eu/environment/nature/biodiversity/strategy/index_en.htm

It is clear that a particular vision of farming is inherent in the document which states: 'certain agricultural practices are a key driver of biodiversity decline. This is why it is important to work with farmers to support and incentivise the transition to fully sustainable practices. Improving the condition and diversity of agroecosystems will increase the sector’s resilience to climate change, environmental risks and socioeconomic shocks, while creating new jobs, for example in organic farming, rural tourism or recreation.'

In other words, intensive forms of farming may face challenges.

The Commission's new Green Deal also has implications for agriculture and it has been leaked ahead of publication: https://www.euractiv.com/section/agriculture-food/news/commission-hikes-caps-second-pillar-spending-to-deliver-green-deal/

The recovery plan from Covid-19 'aims to digitalise and modernise the farming sector to increase the EU's resilience and to lower EU's dependency on third countries.'

Something similar may find favour in the UK after Brexit.

How can the CAP reduce GHG emissions?

Climate change has been an absent element of the CAP. A proposal for a third pillar was put forward in the last round of reforms, but was quickly squashed - I suspect by agri-business interests. However, the pressures to do something are now substantial, but what policy instruments should be used?

In that respect an article in the latest Journal of Agricultural Economics is helpful: M Himics et al, 'Setting Climate Action as the Priority for the Common Agricultural Policy: a Simulation Experiment.'

They examine the possibilities of re-directing the direct income support provided to farmers to a direct greenhouse gas reduction subsidy. They find that such a reallocation of financial resources could reduce agricultural non-carbon dioxide emissions (nitrous oxide and methane) by 21 per cent by 2030, compared to a business-as-usual baseline. Two-thirds of the emission savings are due to changes in production levels and composition.

A table lists various technological mitigation options, e.g., feed additives for livestock and breeding programmes to increase ruminant feed efficiency. Crops could use measures such as precision farming and better timing of fertilisation.

The special needs of remote island farming communities like the Orkney Islands would be respected

The greening top up of Pillar 1 would be retained, as would coupled supports for sectors and regions in competitive disadvantage. There would also be support for farmers in areas with natural constraints. My example would be the Orkney Islands which receive coupled support via the Scottish Government.

However, the removal of the basic payment could be associated with accelerated structural change and variable income effects. This does raise questions of political feasibility.

In future member states will have more flexibility to choose from a menu of greening policy options. However, it is not clear how the new CAP design would enable agriculture to meet the EU's emission reduction targets.

One area of difficulty in terms of the article's proposal is the impact on the livestock sector, already under economic pressure. 'The ruminant meat sector is most affected (-10% decrease in herd size and -9% in production), but pig production is also negatively affected.' Prices for beef and sheep and goat meat would go up, but would be offset by increasing imports and decreasing exports.

There would also be a six per cent decrease in the total utilised agricultural area, particularly of fodder activities and a 34 per cent increase in set aside activities and fallow land.

Emission savings in the EU are partially offset globally due to increasing production in less emission efficient trading partners. (Not given as an example, but Brazil comes to mind).

The scheme might also penalise farmers who have already invested in emission-efficient technologies and might require above average financial incentives to achieve further GHG reductions.

The authors argue that 'taking the current status quo of the regional pattern of basic CAP payments as a benchmark for direct agricultural GHG emissions-reduction policy would be suboptimal'. In terms of political acceptability, that might be problematic.