Winners and losers from new funding formula

Professor Alan Matthew  writes: ‘There is great interest in what the Commission's MFF proposal and the subsequent modifications announced by the Commission President might mean for future EU support for farmers through the CAP. One of the sure things is that the impact will not be uniform across Member States, partly because the new allocation formula for the National and Regional Partnership Fund (NRPF) redistributes EU funding between Member States.

In previous blog posts, I attempted to estimate how the new funding formula (including the ring-fencing for specific objectives) can constrain the ability of Member States to transfer NRPF resources to increase the CAP budget beyond the minimum ring-fenced amounts proposed by the Commission, and thus to provide a level of CAP funding equivalent to that available to farmers in the 2021-2027 period.

This finding qualifies the conclusion in my previous post that there is a good chance that the level of CAP support would be maintained in current prices if the Commission’s MFF proposal were approved as it stands. This assessment may still stand for the EU as whole, but not necessarily for each Member State. ‘   In short, potentially there will be winners and losers.

Full analysis: https://capreform.eu/further-reflections-on-cap-governance-and-budget/

My cow is a stranded asset

A 'stranded asset' in the Azores.   Remote and peripheral areas may find a shift in diets particularly challenging.

As consumers shift to plant based diets for a variety of reasons, livestock are likely to become 'stranded assets', something that has implications for the decisions made by farmers and also public policy.  Professor Alan Matthews reviews an important contribution to this debate: https://capreform.eu/dealing-with-stranded-assets-in-the-green-transition/

In particular, there are implications for the green transition.  Matthews comments: 'Obviously, eliminating subsidies that might encourage farmers to invest in assets that could become potentially stranded should be a first priority. High stranded asset exposure, especially in bovine, pig meat and dairy systems, may delay EU dietary and climate action by increasing political resistance or financial vulnerability among producers. The paper argues for targeted policy support to farmers who want to adjust their farm businesses and possibly compensation for those who are unable to adjust.'

Mercosur deal upsets French farmers

The EU made some last minute concessions on agriculture to get the trade pact with Mercosur signed after 26 years, but farmers are still not happy

Brussels won over waverers including Italy with extra subsidies and possible bans on some agricultural imports. The EU also agreed safeguards to temporarily suspend tariff exemptions for certain agricultural products if imports surge or prices drop. Transition periods for removing tariffs range up to 30 years.

French farmers were still strongly opposed and more than 5,000 of them and 750 tractors demonstrated in Strasbourg leading to clashes with riot police outside the European Parliament.   They also set up road blocks outside the ports of Cherbourg and Le Havre and stopped container lorries.

Beef imports into Europe will be limited to 99,000 tons a year and poultry to 180,000 tons, but European farmers complain that their Mercosur counterparts face less stringent regulations on animal welfare and pesticides.   They also complain that meat from there contains antibiotics and growth hormones,

In an article on the deal, the Spectator points out that there were 1.6 million farms in France in 1970 and today there are just 450,000, but some of us might see that as an efficiency gain.

However, the prospect of an EU trade deal with India is likely to lead to further tensions with French farmers  Meanwhile, the Federation of German Industries has praised the deal as a strong signal for free trade.

Can the EU borrow the money it needs?

Professor Alan Matthews looks at the EU's capacity to borrow in the light of the new budgetary framework: https://capreform.eu/the-role-of-borrowing-in-the-eus-mff-budget-discussions/

Key issues for agricultural stakeholders are

1. Whether the EU should be endowed with permanent borrowing powers.

2. How to expand the EU’s own resources.

• 3. Whether agriculture and rural development might benefit from the proposed Catalyst Europe loan programme in the next MFF.

Bleak outlook on US-EU trade relationship

Professor Alan Matthews provides an in depth authoritative look at the US-EU trade relationship in 2025: https://capreform.eu/navigating-the-eu-u-s-trade-relationship/

He expects the relationship to break down in 2026.  How should the EU respond?  There aren't many or indeed any good choices.   Retaliation is not very effective given the EU's limited ability to inflict pain on the US economy.

However, that does not mean a passive acceptance of the status quo.   Matthews argues:'The necessary response is to reduce our dependencies to allow more room for manoeuvre in any future stand-off, recognising that this is easier said than done.'

Farm lobby forces delay to Mercosur pact

Europe's farm lobby has once again shown its strength with a further delay to the signing of the trade deal with the Latin American trade bloc Mercosur which has now been over 25 years in the making

The EU has agreed to delay the signing of its trade deal with South American countries until early January after Italy and France said they needed more time to convince farmers to accept the pact. The decision, which ends plans to complete the long-delayed Mercosur free trade accord by this weekend, came after Italian Prime Minister Giorgia Meloni pleaded for more time during a phone call on Thursday with Brazilian President Luiz Inácio Lula da Silva. 

“We have reached out to our Mercosur partners and agreed to postpone slightly the signature,” European Commission president Ursula von der Leyen posted on X. The Brazilian leader had warned on Wednesday that if the landmark deal was not signed this weekend it would never be signed during his presidency. But he softened his tone after the call with Meloni, the exponent of pragmatic nationalist politics.

 “Meloni explained that she is not against the agreement, she is simply experiencing some political embarrassment because of the Italian farmers, but that she is certain she is capable of convincing them to accept the agreement,” Lula said. “She asked me that if we have patience for a week, 10 days, at most a month, Italy will join the agreement,” he said, adding that he would relay Meloni’s comments at a meeting of Mercosur countries this weekend. 

The EU’s biggest free trade deal has taken 25 years to negotiate, having been agreed a year ago, pending formal ratification. France has also sought to delay the signing of a deal until its concerns about the impact on farmers were assuaged.

The politics have been complicated by a separate dispute involving French farmers which has somehow become related, at least in the minds of conspiracy theorists.

The French government's handling of an outbreak of bovine lumpy skin disease (LSD) has led to the blocking of highways and inter city railways along with the traditional dumping of manure outside government offices.  The disease can be fatal for cattle, but is harmless for humans.   

Ministers have ordered the culling of herds in affected areas and the vaccination of those nearby.  However, internet rumours say it is part of an EU plot to kill off French cattle in favour of South American beef imports.   Riot police have had to be brought in to protect vets implementing the culls,    The army has been drafted in to speed up vaccinations.

What does the rise of the populist right mean for the CAP?

Alan Matthews writes about the changing political landscape in the EU.  ‘The right-wing parties in power or close to power are generally Eurosceptic, though on a spectrum ranging from soft to hard Euroscepticism. This will inevitably influence the debate on the future CAP.

These parties favour the traditional priorities of agricultural policy, such as income support, productivism and food sovereignty, while objecting to Green Deal objectives. They also seek to repatriate powers from Brussels and thus favour greater subsidiarity in the CAP. On the other hand, they also favour a strong budget for farmers, but they may split on whether this should be funded by national budgets or by the CAP.

A more nationalistic stance in net budget contributor countries can put at risk the scale of transfers under the main transfer policies of CAP and cohesion. The Commission's MFF proposal keeps the amount of funding for transfer policies broadly constant in current prices. And its proposed allocation formula for these funds under the NRPF Regulation generally increases the transfers from richer to poorer countries though with notable exceptions (e.g. Belgium and Netherlands will get more while Czechia, Slovenia and Estonia will get less than in the current MFF period).

With the shift favouring Eurosceptic parties across the EU, net contributor countries may well see merit in a lower CAP (and cohesion) budget where the saving in their national contributions to the EU budget would more than allow them increase their national funding to their farmers. Both the scale of funding for transfer policies as well as the allocation formula will come under increasing scrutiny as the MFF negotiations proceed.’

One commentator observed: ‘From an analytical perspective, it is striking that food sovereignty—a concept rooted in left-wing peasant movements and their critiques of globalised, industrial agriculture—is increasingly taken up by right-wing parties. This illustrates how normative concepts can be reinterpreted and repurposed across ideological lines, often becoming detached from their original foundations. It shows why paying attention to how and why terminology travels, changes meaning, and is co-opted in political debates really matters.’

A Spanish perspective wax: ‘Speaking from the Spanish case (a net CAP receiver for 30+ years, with a lot to lose from re-nationalisation), the far-right narrative is that Brussels is dominated by “woke” elites pushing an agenda perceived as anti-farmer. By re-nationalising, they expect to regain sovereignty over what gets funded and under which conditions, so that support better matches their (climate change denialist) ideology. At the end of the day, I don’t think they care much if the pie gets smaller; what matters is choosing who gets a slice and being able to claim the medal of “defending farmers”. Something they can never do under the current CAP after years of demonising Brussels. Basically, nationalist clientelism.’