Rethinking the CAP

Alan Matthews reports: 'My article "Reimagining the Common Agricultural Policy: Competing Rationales for the CAP after 2027" has now been published in Studies in Agricultural Economics and is available open access here https://lnkd.in/gmft2tVs. I identify four different rationales for CAP spending and argue that the Commission's Vision for Agriculture and Food and its proposals for the CAP post-2027 represent an attempt to construct a new political settlement aiming to reconcile economic competitiveness, environmental sustainability, food security and territorial cohesion. But with a more limited budget, it is more important than ever to ask what we want from EU agricultural policy. Policies should focus on areas that generate European value added and I discuss what this might mean for spending priorities. The whole issue is well worth reading.'

Iceland's CAP dilemma

Voting intentions are on a knife edge as Iceland heads for its referendum on whether even to restart talks with the EU on membership.  Security and economics are drivers for change and the future of the fishing industry is vital.   However, agriculture is also a key issue.

Farming is ingrained in the Icelandic sense of national identity — in the 1970s there were about three sheep for every person — but it has been in decline. In the early 2000s, farms shuttered, young people moved to Reykjavik for higher-paying jobs and immigration surged. The number of humans overtook sheep in 2021.

“A hundred years ago, almost all people in Iceland were either fishermen or farmers,” according to Steinthor Arnarsson, a sheep farmer located in Burdardalur, northwest Iceland, whose family have been sheep farmers “all the way back”.

There has been talk of driving tractors into Reykjavik in protest. “If we’re going to become European farmers we should start acting like them,” Arnarsson joked to the Sunday Times.

Their main concern is that joining the single market will leave farmers priced out by cheap goods from the EU. They also fear that there will end up being fewer, bigger farms, consolidated around the capital, leaving rural communities diminished.

Others argue that EU subsidies would mean Icelandic farmers end up benefiting, and that membership of the bloc could also help to improve crumbling infrastructure in the country. Potholes are regularly mentioned.

Herdis Gunnarsdottir owns a dairy farm in Egilstad in the remote east of Iceland. She fears that her farm, with 80 cows (“big for Iceland”) won’t be able to compete with milk from industrial farms in the Netherlands, for example.   But transporting milk from the Netherlands to Iceland would be expensive, and Icelanders might prefer their home product.

 

Why does food system reform stall?

Professor Alan Matthews gave the presidential address at the 100th conference of the Society of Agricultural Economics held in Oxford earlier this year.  The Princess Royal, Princess Anne, was present for the address and commended the concept of academics as 'honest brokers'.   I had the privilege of reading this and commenting on it in draft form.   The revised version has now been made available on an early view basis in the Journal of Agricultural Economics.   

I found the concept of ideal type policy ontologies particularly helpful.

Here is the abstract: 

Agricultural and food policy is increasingly shaped by geopolitical instability, ecological constraints, technological disruption, political polarisation and declining trust in expertise. At the same time, calls for food system transformation have gained prominence as evidence accumulates on the environmental, health and social shortcomings of current food systems. Yet reform has frequently stalled despite extensive scientific analysis and broad recognition of the need for change. This paper examines why. 

After reviewing some traditional explanations for policy persistence, the paper introduces the concept of policy ontologies: underlying ways of understanding what the food system is, how it functions, what it is ultimately for and how change occurs. Three ideal-type ontologies are identified: a productivity ontology, a power-focused ontology and an ecological ontology. These ontologies shape the definition of policy problems and the selection of preferred policy responses, helping to explain why stakeholders often appear to talk past one another. 

As the Society begins its second century in a more turbulent and contested policy environment, the profession's central role remains the production of rigorous evidence. That contribution will be strengthened by a greater awareness of the different ways in which food systems are understood and of how these perspectives shape both policy debates and the interpretation of evidence. Recognising these underlying assumptions can help agricultural economists contribute more effectively to policy debate as honest brokers of policy alternatives.

Heatwave hits grain harvest

Europe’s June heatwave wiped more than €2bn from the value of its grain crop, according to new analysis, with France and Hungary bearing the brunt of the damage. Almost 9mn tonnes were removed from forecasts for grain production across the EU and UK in the four weeks following the heatwave, according to Coceral, the European grain traders’ association.

Analysis by the Energy and Climate Intelligence Unit valued the lost production at about €2.1bn in national farm-gate prices for wheat, barley, maize and other grains, or about 5 per cent using 2025 production value estimates. The heat struck wheat during the critical period when kernels were filling in central and southern France, southern Germany, Austria, Poland and Hungary, Coceral told the Financial Times.

Spring barley was more badly affected than the winter barley crop, which was largely developed before the temperatures rose. The hottest June on record for western Europe follows a temperature rise of 3C over the 1991-2020 average, In France, the thermometer reached a high of more than 43C and in Hungary the peak was more than 40C. About half of the reduction in Europe’s grain forecast came from maize, used mainly for livestock feed, which was caught during pollination in France and Hungary. Coceral cut its forecast for the EU and UK maize crop from 57.2mn tonnes to 52.7mn tonnes. The EU is a net importer of the crop in poor harvest years, meaning the shortfall could increase demand for shipments from suppliers including Ukraine and Brazil.

The smaller French harvest could also reduce the amount of wheat available for export to buyers in north and west Africa, while higher feed costs are likely to filter through to livestock producers in coming months. France accounted for almost half of the grain crop damage. Its forecast was cut by 4.1mn tonnes, worth about €891mn at current prices.

Most of its reduction came from maize, for which the forecast was lowered by 3.35mn tonnes to 9.4mn tonnes — below even the crop produced during the severe drought of 2022. Hungary suffered the second-largest hit, with its grain forecast cut by 2.4mn tonnes, valued at about €444mn.

Spain lost a further 1.4mn tonnes, worth €276mn, while Germany’s forecast was lowered by roughly the same amount, equivalent to €233mn of production. The impact could be exacerbated for Hungarian farmers because domestic producer prices fell as the harvest approached, with cheaper Black Sea grain weighing on the market.

That leaves growers facing the loss of production without the partial offset from higher prices, which could be received by some French farmers. “This will hit farmers in the pockets, reducing their income and undermining European food security at the same time,” Tom Lancaster, ECIU land, food and farming analyst told th\e FT.

The losses come as EU governments negotiate the future of the bloc’s Common Agricultural Policy. Théo Paquet, senior policy officer at the European Environmental Bureau, told the Pink ‘Un that instead of subsidies being used to fund resilience to climate change, they “continue to fund harmful practices that contribute directly to these crises — fuelling an expensive and unsustainable feedback loop”.

UAE royal family benefits from CAP payments

Professor Alan Matthews highlights ‘An impressive piece of investigative journalism. It not only adds support for the Commission's proposal for degressivity and capping of income support payments, but it also undermines the argument that these payments are necessary to ensure food security in Europe.’

According to a report in The Guardian, ‘The United Arab Emirates’ ruling royal family is benefiting from tens of millions in EU subsidies to grow crops destined for the Gulf, it can be revealed.

A cross-border investigation by DeSmog and shared with the Guardian found subsidiaries controlled by the Al Nahyans collected more than €71m (£61m) in six years for farmland it controls in Romania, Italy and Spain.’

Read more here: https://www.theguardian.com/world/2026/may/07/uae-ruling-royal-family-eu-farming-subsidies

However, some have that this has argued that this is populist journalism the latest version of a tired 'scandal' trope: "The “scandal” that larger farms receive more than smaller ones under area-based payments distracts from the real problem, which is that EU agricultural policy as a whole is catastrophically inconsistent from a governance ("ordnungspolitische") perspective. Industrial and structural policy cannot be justified on the basis of income arguments. This creates a class ("Stand") of privileged recipients of state funds and causes massive problems through misallocations in structural change. This fundamental problem needs to be addressed."

Another comment was: 'We already had the same story X times: the Queen of England, Rheinbraun, BASF etc. As a result more or less bureaucratic active farmer clauses were introduced which did not change a lot while creating difficult and burdensome administrative problems. Capping would be a solution which however was rejected each time it was proposed by the Commission. These stories distract from the real question: Should the CAP carry on with direct payments and, if yes, should they be merely paid for keeping areas in good agricultural and ecological condition or rather for achieving public goods?'

The CAP always leads to controversy about both policy objectives and instruments.

Is the influence of the farm lobby weakening?

 The Financial Times has a major article this morning on the CAP as discussions take place on the next iteration of the CAP.   And who is in charge as farm commissioner?  A farmer from Luxembourg who went to university in France.  The Grand Duchy is always seen as susceptible to French influence.

I reproduce some highlights from the article below but add some comments of my own in square brackets.

On May 1, decades of resistance by the agricultural lobby were broken when the trade deal Mercosur came into effect. Member states earlier voted narrowly to apply the pact, albeit with significant concessions to assuage the farmers and their powerful special-interest groups. European Commission president Ursula von der Leyen exercised her power to over-rule legal challenges to the deal to ensure it came into provisional force.

It was a moment that suggested the long-held power of the farmers could be weakening. Through political protection and heavy subsidies, European farming has been designed not only to secure food supplies but also to preserve a rural way of life.  [But the future of many rural areas may not be principally in farming but in tourism.  Better broadband connection is vital.]

The result is a sector that remains dominated by small family farms even as agriculture elsewhere in the world has consolidated and industrialised. But the Mercosur deal has shown that the model may be coming under strain, just as policymakers are debating the future of the subsidy regime that underpins it.   [But the deal has been watered down and took quarter of a century to negotiate].

Farming groups say trade deals and other reforms threaten Europe’s food security at a time of growing geopolitical risk and just as farmers come under even more pressure as the Gulf crisis forces up fuel and fertiliser prices.   [It’s a good time for farmers to bang the food security drum].

But supporters of reform to the system argue that Europe’s priority has to be competing in this new geopolitical world, rather than shielding farmers from market forces with a safety net of subsidies.

Some believe these heavy subsidies are slowing down market-driven restructuring that could replace failing family farms with more efficient, large-scale agribusinesses — as is happening already in parts of southern Europe. The impact on overall food production would be limited, they say.   [But the idea of the family farm has sentimental appeal to urban voters].

Smaller farms are also seen by industry groups as central to Europe’s rural identity. Organisations such as Italy’s biggest farm lobby Coldiretti argue that these holdings sustain not just local economies but landscapes, traditions and food cultures that define much of the continent.  [High quality foodstuffs are niche products that can command a price well above that commanded by commodities.  Many consumers are ‘foodies’ interested in cooking and provenance].

But some experts argue the risk to food security is overstated. Recent studies by the EU’s Joint Research Centre show that if the CAP were removed, agricultural production would only reduce by just over 5 per cent.

“Fertile good land is not going to be left idle if we don’t pay subsidies to farmers,” Alan Matthews, professor of European agricultural policy at Trinity College Dublin, told the Pink ‘Un. He says that to maximise food production and reduce subsidies, the EU needs bigger farms. But that goes against the grain of popular opinion and national culture.   [I have recently been working on a co-authored essay with him].

The current moment “raises interesting questions about whether family farming is the way to continue the structure in the future”, Matthews told the FT, “not only when farmers have to raise their crops but have to be accountants, they have to be vets and environmentalists and work drones and all this stuff. To expect anyone to be even medium level in all these skills is a little too much.”

Institutional investors move in

As many family farmers are selling up, institutional investors are moving in. Spain and Portugal, which already supply a large share of Europe’s fruit, vegetables and olive oil, have become a focal point, where many see an opportunity to expand and modernise farming.   Data from global real estate adviser CBRE shows more than €4.2bn was invested in Iberian agribusiness between 2022 and 2024, with institutional investors accounting for roughly half of that total.

“Until 10-15 years ago, the agricultural asset class wasn’t a prime consideration in investors’ portfolios,” Javier Uribarren, partner at Trifolium Farms told the leading business paper.  This business acquires and manages agricultural land on behalf of institutional investors across Iberia, focusing on permanent crops such as olives, almonds and citrus.

Increasingly, however, it has become more attractive as “an inflation hedge” and as “an asset that is uncorrelated from others” in a typical portfolio, he commented. The attraction is not just the land itself, but how the sector is changing. “There’s a natural consolidation of a sector that was very much driven by family ownership and that is the succession of family ownership into institutional investors, private equity, pension funds etc,” he added, explaining that farms are often too small to compete and in many cases there is no one to take them over.

 Investors are betting that bigger farms work better. “Everything that we do is mechanised,” Uribarren says. “Unless you have the necessary scale . . . it’s not profitable.” Larger operations can invest in irrigation, new planting systems and technology that smaller farms cannot afford.

This will make it easier for the EU to compete with more industrialised producers such as Brazil or Australia, where agriculture operates at greater scale and with fewer subsidies. But Europe’s farmers are unlikely to go down without a manure-slinging fight first.   [Expect more angry demonstrations in Brussels and member states].

 

EU budget discussions reach critical stage

Professor Alan Matthews looks critically at multi-year EU budget proposals which have reached the European Parliament: https://capreform.eu/europes-e1-8t-budget-fight-just-got-real/

Matthew notes: 'This calls for increased MFF expenditure of 55% in real terms compared to the current MFF (where the Commission proposes an increase of 41%, in both cases including repayment of the NGEU loan). I find increases of this magnitude implausible, raising the question where reductions in the Commission's budget proposal might be made. We will see the Council's opening gambit when the Cyprus Presidency submits the first version of the negotiating box with figures to the June meeting of the European Council.'