Agricultural policy outside the EU

Whether or not the UK will leave the European Union remains to be seen, but it is a sufficiently serious prospect for it to be worth thinking about its implications for agricultural policy.

What one would probably have is a continuation of a version of the CAP at the national level. One of the constraints here is that the UK would still be a member of the World Trade Organisation and any agricultural subsidies it provided would have to be compatible with WTO rules. Indeed, it could be argued that recent changes to the CAP have been driven too much by the need to provide subsidies in a form that can demonstrate that they are compatible with the 'green box'/non-trade-distorting requirements of the WTO. Hence, the policy instruments may have been influenced too much by that requirement.

Within the discussion of the 'balance of competences' review of the CAP, one issue is how much 'renationalisation' there has been of the CAP. Certainly, there has been quite a considerable amount of recoupling which gives quite a lot of discretion to member states or their regional governments, but the basic principles of the CAP remain intact.

In any case, some would argue that the term 'renationalisation' is an inappropriate or old fashioned one. What has happened rather is the maintenance of a common policy design with national flexibility in policy implementation. Some argue that as the goals of the CAP have become more complicated, and in particular taken on a greater public goods/environmental emphasis, there has been a recasting of the form of the CAP (although it is possible to exaggerate the extent of this). What this requires is policy instruments that allow diversity of implementation in member states (but not to an extent that would satisfy Eurosceptics). It is, however, worth bearing in mind that a lot of policies affecting agriculture are nationally determined, particularly taxation and inheritance law and planning regulations.

It may be that the CAP can be characterised as a means of tackling the market failures associated with land management (but arguably a rather inefficient means of doing so). However, for some member states the occupation of land could be a key objective to prevent rural depopulation and secure the ecosystem benefits of farmed land.

One also comes up against the problem of a low level of competence in effective policy design and delivery. That is not a problem confined to the CAP, but is a general challenge for the EU and for member state governments, but it is particularly evident in relation to the CAP.

Disciplining agricultural support

The WTO may have rules in place to discipline domestic agricultural support, but in practice this is quite difficult given the propensity of countries to evade or fail to fully implement the rules given what they perceive as being their national interests. Three leading agricultural economists have produced a report on the subject which covers four developed countries (including the US, EU and Japan) and four developing countries (including India and China). It can be found here: Agricultural support

The report raises the question of the legitimacy of green box support which has been discussed on this page before. It notes that this has been treated as 'decoupled income support by the United States, the European Union, and China. There are large differences in the levels of such payments. The extent to which decoupled income support affects production remains uncertain but may be consequential. Limits might therefore be envisioned for this type of support to achieve a balanced set of future commitments.'

The EU has always taken the view that the SFP can be protected by putting it in the Green Box, but is always possible that this might be challenged in the WTO's Dispute Settlement Mechanism - although this would incur political costs for the country concerned.

It's all in the green box

The EU has done a good job of stuffing its CAP subsidies into the green box category which is supposedly free of distortions to international trade, this latest report from ICTSD shows: Green Box

Production-linked subsidies hit a new 'low' of €12.3bn, whereas green box subsidies such as the Single Farm Payment amounted to a new high of €62.6bn. That makes a total of €74.9bn and it is worth reflecting on the opportunity cost of that amount of spending.

As one comment on the report points out, what really distorts global trade are the EU's high tariff barriers, particularly in relation to so-called 'sensitive' products. Should the Doha Round resume, this is an area in which agreement will be needed.

Of course, there are questions about whether subsidies placed in the green box are really free of distortions to international trade and this could be tested in the quasi-judicial WTO dispute settlement mechanism at some point in the future.

CAP support levels reach new high

CAP subsidies as reported to the WTO reached a new high of over €90 billion for the decade in the 2006/7 marketing year, but conveniently most of them have been parked in the allegedly non trade distorting green box, something that has provoked disquiet in Geneva: Subsidies

Nasty surprises in the green box

Governments are increasingly putting their subsidy payments into the 'green box' of the WTO, but there is evidence that these subsidies are harmful to the environment and farmers in the Global South. Read more here: Green box