Cypriot presidency contemplates CAP budget cuts

The informal meeting of farm ministers in Nicosia from 9 to 11 September which marks the effective start of the Cypriot presidency after the August holiday break is going to focus on water scarcity, land abandonment and soil erosion. These are important topics, against the background of climate change, and especially important to southern member states, but they are not at the heart of the CAP reform agenda.

However, the word is that the Cypriot presidency thinks that there will have to be much bigger cuts to the CAP budget in the next seven year cycle than contemplated hitherto. This comes against the background of talk of a €100m cut in the EU budget to match austerity at home. As the largest budget line, the CAP would have to take its fair share of the pain.

It is being said that direct payments to farmers and rural development would take the biggest hit which makes sense as they are the largest components of the budget. There might be more flexibility to switch between these two budget lines.

Needless to say, some member states are already gearing up to oppose any such move. The other difficulty is that there is a great temptation in such circumstances to reduce spending by x per cent across the board without considering which spending offers a cost effective way of achieving policy objectives. But, then, that has been the story of the CAP.

Double change at Defra worries farmers

The double change at Defra of secretary of state and farm minister has worried farmers and their friends, although new secretary of state Owen Patterson is said to be on message on badger culls: Defra

Patterson asked Hilary Benn 500 questions on badger culls when he was at Defra and has been on a study tour in the United States to look at bovine TB and its control.

Caroline Spelman was never fully convincing as a safe pair of hands in what admittedly is a disparate and challenging portfolio. However, what really worries farmers is the departure of Jim Paice as farm minister who was seen as having an understanding of the industry and a sympathy with farmers as one himself. Ironically, Dave Cameron sacked him by mobile phone when he was announcing the new code of practice for dairy farmers which many saw as his biggest achievement. Tributes to him from farming leaders here: Paice

However, the arrival of David Heath in his place means that the Lib Dems at last have a representative in Defra, a suprising omission given where they hold many of their seats. It also means an end to the experiment of Isles of Scilly MP Andrew George as Lib Dem liaison person, something that never really worked.

Whether the presence of a Lib Dem will mean any change in policy remains to be seen. The real need now is for Britain's voice to be heard effectively in the CAP negotiations in order to bring them to some kind of reasonable conclusion and not hopelessly behind schedule.

Elsewhere Lib Dem Jo Swinson, until now PPS to Nick Clegg, is reportedly in at BIS and will be responsible for the Grocery Adjudicator Bill, a key topic for those in the food chain.

Is the complexity deliberate?

For all the talk of a drive towards simplification, complexity is a built in feature of the Common Agricultural Policy. It makes it more difficult for critics to assess what the real effects of decisions are. It becomes more challenging to mount a sustained and informed critique.

Bringing agriculture into the co-decision mechanism at the European Parliament was unavoidable given that it was a supposed boost to democracy, but an alternative narrative would be that it gave more opportunities for special interests to defend the status quo.

MEPs have tabled no less than 7,415 amendments to the proposed 2014 reform of the CAP before departing for their long summer recess. It will take until September just to translate them.

With 2,292 amendments on direct payments to farmers alone, changes are proposed to almost every part of the Commission's proposals. There are those who wonder whether the sheer volume of amendments is a deliberate strategy on the part of some member states to defend the status quo. France, Germany and Italy come to mind.

It is going to be difficult to complete the reform process on time. Moreover, what was a less than radical reform in the first place is going to be watered down even further.

Financiers spring to defence of ETPs

The controversy over exchange traded products (ETPs) and their effect on food prices continues with some financial providers say they will not withdraw them. In a report issued this April, Finance Watch, a Brussels-based public interest advocacy group argued that excessive commodity speculation raises prices artificially and damages the market for real buyers and sellers. Read more here: Commodities

Others take the opposite view. They point out that the size of the financial market in commodities is tiny in comparison with the physical market and it is the physical market that sets price - the tail does not wag the dog. Nevertheless, the financial market could still have a disproportionate effect in uncertain conditions.

Against that Guy Wolf from commodities broker Marex Spectron commented, 'The futures market is a forum for buyers and sellers to hedge their exposure that benefits both parties and in fact we need more speculation to help absorb volatility.' Indeed, even a report called Farming Money from Friends of the Earth Europe (FoEE) admits that speculators can bridge the gap between buyers and sellers and provide liquidity in the market.

Twenty-five groups including FoEE are urging member states to use this autumn's review of Mifid (the Markets in Financial Instruments Directive) to curb speculation in food and other commodity derivative markets. They are advocating strict position limits and banning financial entities from speculating in commodity markets. Read more here: Speculation

The largest providers of ETPs have made it clear that they have no plans to withdraw these instruments after a number of operators said that they would. Volksbanken of Austria announced that it was withdrawing investment products linked to agricultural commodities and Germany's Commerzbank removed agricultural products from its Comstage commodity exchange traded fund in July. In March Deutsche Bank, the second largest provider of ETPs in Europe, said it would refrain from launching any new ones based on basic foodstuffs.

However, ETF Securities, the largest provider of commodity traded ETPs in Europe and iShares, the world's biggest ETP manager, said they had no plans to scrap their offerings. Their defenders argue that investment in agricultural commodity ETPs do not result in hoarding because they invest in futures unlike physical gold ETPs which hold bullion in a vault.

Globalization of agriculture inevitably led to its involvement in more sophisticated financial instruments which some would describe as socially harmful. Others see them as an efficient market clearing mechanism. Much depends on how influential they are in the market. At present they are not dominant and an outright ban would be an over reaction.

Banks withdraw food commodity funds

There has been considerable discussion about whether speculation drives food commodity prices up, although no definitive answer. My hunch would be that it tends to make them more volatile which creates difficulties for both producers and consumers.

Now a number of European banks are withdrawing vehicles that make it relatively easy for investors to speculate on food prices: Speculation

The decision represents a victory for campaigning groups such as Food Watch, Oxfam and the World Development Movement. The banks were concerned about reputational damage, no doubt enhanced by upward pressure on prices following the drought in the United States.

Dairy farmers under pressure

The recent cuts in farm gate prices for milk have placed dairy farmers under real pressure and there is no doubt that many of them are not covering the cost of production. Blockades and evident consumer sympathy have stirred many supermarkets to increase the price they pay for liquid milk.

However, that is only part of the story. Half of all milk produced goes for manufacturing and that has always attracted a lower price (although the old Milk Marketing Board had a complicated system that varied the price according to the end use of the milk so more was paid if it was used for chocolate crumb than cheddar cheese).

Manufacturing prices are driven by global markets which are in turn affected by low cost mega dairies in California and elsewhere. There is hope that prices may firm up after the seasonal production peak in Europe. Prices in June were firmer for some products, particularly butter and cream, but average dairy commodity prices fell back by 5.9 per cent at Fonterra's latest Global Dairy Trade auction earlier this month, largely as a resut of increased supply. Prices may well remain stagnant until September.

Factors to take into account include whether product stocks will be sold before the next flush of milk begins in the southern hemisphere where countries including New Zealand, Argentina and Uruguay are efficient producers. The emerging economy growth rate is also an important consideration as it drives greater consumption of dairy products. The recession in Europe also has an impact and British deliveries in the two weeks to the end of June were down 2.1 per cent on the same period last year.

It is also worth bearing in mind that farmers are encountering these financial difficulties despite substantial EU subsidies.

The challenge of feeding the world

The urgent need to increase farm production in order to feed a growing global population was a recurring theme last week with a number of reports and opinions published on the subject.

The words ‘productivity’ and ‘sustainability’ were the key elements of the latest Agricultural Outlook report from the OECD and the UN’s Food and Agriculture Organisation (FAO), covering the years 2012-2021. The UN predicts that the population of the world will increase by around a third from current levels, which will mean farm production will need to increase by 60 per cent over the next 40 years.

This translates into an additional one billion tonnes of cereals and 200 million tonnes of meat a year by 2050 compared to 2005-2007 levels. In order to achieve this level, the report suggests a number of ways that this can be achieved, particularly in developing countries, including supplemental irrigation, improving storage and transport links and the more efficient use of nutrients.

Whether or not this level of production can be reached is another matter and one that many analysts feel is not possible without a considerable overhaul of agricultural policy, the rapid introduction of new technology and in a way that meets the rather loose term of ‘sustainable’ or the contested term 'sustainable intensfication'.

Not so sweet

In article in this week’s Agra Europe, European Commission spokesperson Roger Waite has denied that sugar refiners in the EU market are being treated unfairly and claims that persistently high world market prices are to blame for supply difficulties.

The spokesperson for agriculture and rural development argues that the different mechanisms created by the Commission to release additional product to supply the internal market – the release of out-of-quota beet sugar and the reduced-duty tenders to source imported cane sugar – are not discriminatory, but are “two different systems suited to two different realities”.

Waite was responding to an Agra Europe article written in May by Gerald Mason of sugar refiners Tate & Lyle which was highly critical of the Commission’s management of the sugar market.

Waite concedes that the loss of exclusive rights to imported cane for refining after the 2006 reforms has created some difficulties for the former ‘traditional’ refiners. But he notes that these companies received EU restructuring aid totalling €150 million in the aftermath of the reforms.

In addition, the article reiterates the EU executive’s determination to liberalise the internal EU sugar market by abolishing production quotas from 2015. This will be welcome news for many sugar-using companies within the EU but conflicts with many MEPs from sugar-producing member states who are pushing for an extension to 2020.

The sugar lobby has always been a powerful one, but lost ground after the WTO judgement on the EU's sugar regime.

Farmers go for pre-nups as land prices soar

The rise in the price of farmland is leading increasing numbers of farmers to sign pre- and post-nuptial agreements to protect their wealth from enlarged divorce payments to their spouses. A roll in the hay can clearly have consequences not envisaged in the past.

Farmers who have not completed such an agreement face the unwelcome prospect of selling farmland or borrowing money to finance a divorce settlement. Farming divorces are complicated by the fact that the farm is usually the marital home, meaning its value is taken into account when deciding financial settlements for ex-wives.

Selling off part of the farm is not really a solution. 25 years ago a farm might have been viable between 500 and 700 acres, but today something like 1,200 acres is needed to sustain a profitable business, even with CAP subsidies (which are related to the farmable area anyway). If the farm is reduced in size, it may no longer be able to support heirs, particularly if more than one wants to be involved in the farm business.

According to the National Farmers Union it has had more calls from members on this topic since the 2010 ruling involving German heiress Katrin Radmacher which stated that courts can take pre-nups into account when deciding settlements. It has handled 40 referrals from members seeking advice on divorce and pre-nups over the last three years.

This gives a new meaning to the term selective benefit in the pressure group literature. Anyone can get advice on a divorce from a family lawyer, but they may not encounter that many cases involving farms and be relatively unfamiliar with the special considerations involved. That is where an organisation like the NFU can help, showing the relevance of Olson's by-product theory of selective incentives which seeks to explain how lobbying activity can be sustained in the face of the free rider problem

Fields of gold

English farmland has gone up in value by more than 10,000 per cent in the last 60 years. Research from agent Knight Frank shows that an investor who paid £56 an acre for land when the Queen ascended the throne in 1952 would get £6,073 if they sold today, although that is slightly below last June's average figure of £6,156.

Land values started to soar once the UK joined the European Community in 1973. Farmers were then able to benefit from CAP subsidies and land values rose by 390 per cent between 1972 and 1982. There had been subsidies before then, of course, but deficiency payments were more closely related to market fluctuations than blanket EU subsidies. Another consideration was that farmland looked like a relatively safe asset class against the background of the economic turmoil of the 1970s

The 1980s were less buoyant, but in the 1990s demand started to outpace supply, pushing up prices. In 1995 flexible farm business tenancies were introduced which made it more attractive for farmers to rent out land. This led to less land being available on the market at a time when demand was rising.

The recent debate over global food scarcity has reawakened interest in land, along with the drive for alternative fuel sources. However, it may be that prices have peaked. Yields are very low, 1 per cent at best, and farm businesses have an erratic performance due to the impact of the weather and other factors beyond the control of the farmer.

There were important tax incentives relating to land ownership, relating principally to income tax, capital gains tax and inheritance tax. Measures to cap reliefs from trading losses at 25 per cent of income or £50,000 whichever is the greater, will restrict the possibility of offsetting losses on farm businesses.

Many purchases are, however, are lifestyle related. The British tradition of spending a weekend in the country has survived and one way to demonstrate that you have arrived is to buy a country estate. There will always be a strong demand for estates with sporting rights, particularly if they are within an easy drive of London.

The other side of the coin is that it is difficult to break into farming other than by inheritance. Tenancies do not become available that often and local authorities are cutting back on their portfolios of entry level farms to release their capital value. Whilst statistics sometimes exaggerate the ageing profile of British farmers because some of them are in semi-retirement, the industry needs a constant influx of innovative younger people.

It's not an easy life, though. Hours can be long, there is a high rate of deaths and injuries from accidents and there is a lot of often monotonous work. To succeed you need a combination of farming, technological, business and marketing skills. But for some people it is the only life. Two of my nephews grew up on a very successful Welsh farm that has been in the family for generations. One stayed on the farm and loves it. I will be visiting an exhibition of pottery by the other one later this month.

Olive oil crisis hits Southern Europe

Unwanted surpluses are a recurrent problem of the CAP. And now the troubled Southern European countries have been hit by a surplus of olive oil, driving down prices to uneconomic levels. Domestic consumption of the diet staple has fallen because of the economic crisis: in Greece and Italy it has fallen to 1995 levels and in Spain to 2002 levels. At the same time there has been a bumper crop in Spain. The price of premium extra virgin oive oil fell this month to $2,900 a tonne, the lowest since 2002 and down more than half from nearly $6,000 a tonne in 2005.

Spain, Italy and Greece account for some 70 per cent of the world's output. The crop is crucial for some of the poorest regions of Spain including Andalucia, where the unemployment rate was 33 per cent last quarter. Urged on by farmers' union Copa-Cogeca, the EU has started to pay companies to stockpile oil.

Intervention buying was one of the worst features of the old style CAP. It costs money to store the produce and often it deteriorates in quality over time. One then faces the problem of how to sell it without causing market disruption. In the past 'ageing' butter was sold to grateful consumers in the Soviet Union while skimmed milk powder was dumped on third world countries, driving local dairy farmers out of business. Such outlets are not available for olive oil.

Green confusion

Agra Europe reports that support has been building in recent weeks for the idea of member states being offered a menu of options for the ‘greening’ of the CAP post-2013, with a majority of member states backing the plan. But EU farm commissioner Dacian Ciolos took the opportunity at last week’s Farm Council meeting to speak out against taking this route, pushing instead for the principle of greening ‘equivalence’.

Ciolos argued that if member states were allowed to effectively pick and choose which environmental actions would be eligible for the ‘greening’ component of the new direct aid scheme, there woud be a risk of creating an unequal state of affairs across the bloc. Some actions which certain member states may deem appropriate for their particular situation may be more or less ‘beneficial’ to the environment than those implemented in others, for example. An alternative view would be that such an approach is compatible with the notion of subsidiarity.

The proposed menu option, which also drew the ire of environmental groups last week, goes against Ciolos’s ideal that 'quality and consistency' should apply across the EU27 when it comes to the next CAP. The three EU-wide measures that the Commission is proposing for the ‘greening’ elements of the direct payment scheme might also be seen as fitting better with the Commission’s push for 'simplification' of the CAP.

This disagreement between the Commission and member states highlights the fact that the EU farm sector is not as united as the Commission no doubt hoped it would be at this stage. But with 27 diverse member states with differing climates, farmland types and political systems around the table – and against the backdrop of one of the worst financial crises Europe has ever seen - the Commission will almost certainly need to show some flexibility. Or to put it another way, there will have to be another messy and incoherent compromise in order to secure agreement.

These greening proposals have always been ill thought through in my view and risk a lose-lose outcome of damaging farm businesses whilst not helping the environment.

Have farmers less to whinge about?

Sometimes I think that Farmers Weekly should be called Whingers Weekly. Often it's the weather - too hot, too cold, too dry, too wet. Admittedly, it is a challenge in the UK's variable climate. Then it's often prices (where dairy farmers have real concerns) or late payment of subsidies. After that it's vegetarians, defenders of the badger and opponents of GM crops (both of the latter two go way over the top on many occasions). Or it's retailer power, and that's where I have real sympathy with farmers. Let's hope the new supermarket ajudicator makes a difference.

Anyway the NFU has launched a new campaign to boost the image of British farming. Apparently the president is going to emulate the Jubilee by going up the Thames in a farm themed boat to the House of Commons: Farming

Last year farming was one of the most profitable industries in the UK, lifting aggregate net profits 25 per cent to £5.7bn. Measured against other sectors only mining and oil saw bigger growth according to UBS, the investment bank. Of course, farming can have bad years as well as good and not all sectors are doing well, but it does lead one to wonder whether such large blanket subsidies are needed.

As NFU presiden Peter Kendall points out, modern farms make a great deal of use of ICT and 'It's now a high-tech industry, not the way it was 10 years ago.' Pardaoxically, consumers may like a more bucolic image, but then they also want a ready supply of cheap food.

The good times may also be over before they beagn. Farming is fossil fuel intensive and in the long run prices are likely to rise in real terms despite the current dip. Farmers do, of course, pay a lower level of duty on 'red' diesel (sufficiently lower to lead to its occasional illegal use). Supplies of grain are rising which is likely to depress prices. Turmoil in the eurozone may hit exports and the rise in the value of the pound will reduce the amount received in subsidies. However, demand for food is likely to continue to rise, pushing up prices.

Hollande appoints farm minister

One of the first appointments made by President Hollande’s prime minister Jean-Marie Ayrault was to make current MEP Stéphane Le Foll the country’s new farm minister.

A close ally of Hollande, Le Foll’s appointment may prove to be an extremely shrewd move by the new French president as the Socialist MEP has been heavily involved in scrutinising the European Commission’s CAP reform proposals as part of the Parliament’s agriculture committee and is a substitute for the budget committee. I have seen Le Foll in action myself when I have given evidence to the agriculture committee and he is clearly very smart.

Le Foll has also authored a report calling for measures to help EU agriculture adapt to the effects of global warming. It is likely that he will push for a stronger ‘greening’ element at the CAP negotiating table, which will not please some British farmers, as well as a fairer distribution of aid among member states. Of course what is 'fair' is very much in the eye of the beholder.

Backlash against open government

It's no real surprise that there has been a backlash against transparency and open government in the CAP and that the group at farmsubsidy.org who try to shine light in dark corners are facing greater difficulties following court cases: Transparency

Revealing details about payments to individual farm businesses discloses how much some large businesses and food processing firms are receiving from the taxpayer. The bigger you are, the more you get. Of course, it could be argued that the CAP is a very inefficient way of delivering income supplements and that if it is there to promote competitiveness, more is likely to go to bigger farms which tend to be more efficient (and also have a better record in areas like animal welfare).

If one was designing the policy again today, we wouldn't end up with what we've got. But we are constrained by starting from where we are in trying to make reforms.

Greening proposals watered down

Agra Europebroke the news last week that member states are demanding greater flexibility when it comes to the ‘greening’ elements of the proposals for the CAP post-2013.

It has now reported that the proposal for an alternative ‘menu’ with a range of options was said to have been warmly welcomed by a majority of states at a subsequent Special Committee on Agriculture meeting. This could mean that the European Commission’s much-vaunted plan to tie 30 per cent of direct payments to just three EU-wide ‘greening’ measures from 2014 is dead in the water.

As the influential CAP commentator Chris Horseman has argued, it could be said that by not making crystal clear the purpose of ‘greening’ the direct aid payments to farmers under Pillar 1, the EU’s decision-makers have allowed the more influential member states to grasp the nettle and shape a more politically-palatable proposal in its place.

Although the new menu proposal is almost certain to be more acceptable to member states, it is unlikely that they will allow for a more environmentally-sound policy than the original ‘greening’ measures put forward by the Commission and environmental groups such as Birdlife International have already made their feelings known, claiming it will mean 'Europe’s most environmentally harmful farmers to get away without changing anything.'

However, it is arguable that the original proposals were too inflexible and would simply create transaction costs without a favourable environmental outcome. It is not easy to devise cost effective policy instruments for agri-environmental policy that also avoid the 'additionality' problem, i.e., paying farmers for doing something they would have done anyway. Many farmers do see themselves as trustees of the land they own or rent on a long-term basis.

However in the UK the practice of taking on additional parcels of land away from the main farm to make it a commercially viable unit may not help this notion of stewardship.

Amid the wreckage

Alexander Stubb, Finland's EU affairs minister, is quoted in the Financial Times as saying. 'The worry I have in the whole European debate - and we have seen it in the French presidential elections, we see it in the Netherlands, we have also seen it in Finland - is that some fundamentals of European integration are under attack. They include Schengen, the ECB, the euro, the internal market and trade policy. And you know, if we take them away, what's left?

The short and unfortunate answer is the Common Agricultural Policy which still dominates the EU's budget. There is a certain irony in the possibility that among the wreckage of European policies, the CAP would be left standing. Arguably it is the most dysfunctional of the EU's policies.

Stubb, by the way, is a self-confessed EU nerd. Intrigued by his English-sounding name, I found that he went to high school in Daytona Beach, Florida, took his first degree in the States and has a PhD from LSE. Read more here: Stubb

Completing CAP reform on time

In this week’s issue of Agra Europe, editorial director Chris Horseman, who is one of the most experienced and knowledgeable observers of the CAP, suggests that the deadline of January 1, 2014 for the new CAP could be missed unless EU leaders can conclude the Multiannual Financial Framework negotiations by the end of this year.

Horseman argues that the crux of the problem is the fact that MEPs have taken the view that they are not in a position to pass judgement on how CAP spending should be allocated in 2014-2020 if they do not know how much overall spending will be available. Therefore, the need for their Council counterparts to agree a financial framework to provide funds for the Single Farm Payment system becomes an imperative.

However keen the European Commission may be to keep the negotiations on the reform of the CAP and on the future MFF technically separate, the two issues are politically inseparable, Horseman says, before exploring the ramifications and potential scenarios instigated by the deadline for CAP reform being missed.

It has been my view for some time that the deadline would be missed and that January 2015 was a more likely date. It has also been my view that the involvement of the European Parliament would slow down the process and make reform more difficult to achieve. The requirements of a democratic process mean that it should be involved, but the effect on outcomes may be less desirable.

The crux of the issue is that when European domestic governments are practising austerity, and are likely to do for some time to come whatever the calls for a growth strategy, it becomes increasingly difficult to justify the share of the EU budget devoted to the CAP. There is a high 'opportunity cost' in terms of money that could be spent on infrastructure projects that would help employment and research and development that would enhance Europe's flagging competitiveness.

Even within the farm budget there is a strong case for spending more on applied research which would help European agriculture to meet food security challenges in a sustainable way much more than blanket subsidies.

CAP reform proposals 'too complex'

The Court of Auditors has published a report arguing that the proposed CAP reforms are too complex and will not achieve the desired aim of simplification. They might not end the controversial practice of 'sofa farming'.

The Court recognises the efforts made by the Commission to simplify the provisions of the CAP and to address a number of observations made by the Parliament, the Council and the Court. However, the Court considers that the legislative framework of this policy remains too complex.

For example, six distinct layers of rules govern rural development expenditure. With respect to cross compliance, the Court considers that, in spite of the proposed reorganisation, the complexity of this policy continues to make it difficult for paying agencies and beneficiaries to administer.

In spite of the claim that it focuses on results, the policy remains fundamentally focussed on spending and controlling expenditure and therefore oriented more towards compliance than performance. In particular, the specific objectives of direct payments to farmers are not set out in the articles of the relevant regulation, nor are the expected results of those provisions or the type of indicators to be used to measure such results.

With respect to rural development, the Court has underlined the importance of setting out specific concrete objectives that the proposed measures are designed to achieve and of ensuring that support is targeted to rural areas where the aid is most needed. Similarly, the objectives and qualitative and quantitative results that are expected of the implementation of cross compliance obligations as well as of the ‘greening’ component of direct payments are not adequately laid down. The disclosure of such objectives would help focus the policy on delivering the desired results.

The Court has noted the Commission’s intention to direct CAP payments to “active farmers” and to achieve a more balanced distribution of direct payments among beneficiaries. However, the Court considers that the risk persists that payments may continue to be made to beneficiaries who do not exercise any agricultural activity. Furthermore, the Court notes that the redistribution effect of the reduction of the amount aid when such aid exceeds certain levels (“capping”) will be limited.

Furthermore, the Court has doubts as to whether some of these proposed measures can be implemented effectively without imposing an excessive administrative burden on national managing agencies and on farmers. As a way out of this difficulty, the Court suggests adopting a general and simple definition of what constitutes an “active farmer” and to entrust the Commission with the task of managing the implementation of the resulting legislation with a view to reaching the high level objectives set out in the Treaty. These objectives are to increase agricultural productivity as well as increasing the individual earnings of persons engaged in agriculture.

The Court notes that the Commission estimates that the proposed reform is likely to result in an increase of 15 per cent in the costs of managing the direct payment schemes which will be borne by Member States. The Court notes that no information is available on the extent to which such additional costs might be offset by increased management or policy efficiency.

Accession state farmers get little money from CAP

96 per cent of direct payment beneficiaries in the new member states received no more than €5,000 in the 2010 financial year according to Commission figures. The average amount in the EU-12 was €1,550 per farmer. In overall terms 80 per cent of farmers received 20 per cent of the payments. It should be noted that payments are still being phased in in the new member states.

Just over 60 per cent of European farmers received less than €1,250, although quite a few of these would be part-time farmers. Nearly 4,000 received more than the proposed cut off point of €300,000. 1,660 of them were in Germany, 390 in the Czech Reoublic, 330 in Spain and about 310 in the UK.

The Commission notes that 'the direct payments have lost their compensatory character over time' (which is how they were justified at the time of the MacSharry reforms) 'and have increasingly become a support ensuring a certain farm income stability and in combination with cross-compliance, promoting sustainable farming activity.'

If the objective is to stabilise farm incomes, Single Farm Payments are an inefficient way of doing it and a blunt instrument to promote sustainability.