Green space controversy grows

The controversy over the so-called 'Green Space' in the CAP reform proposals is growing: Green Space

A somewhat embattled farm commissioner, Dacian Ciolos, is insistent that the proposals do not amount to set aside. As farm as farm organizations are concerned, if it walks like a duck and talks like a duck ...

The farm lobby is up in arms over this proposal and are citing food security arguments advanced by the G20. However, this is not a straightforward food security/productionism versus the environment argument. I am concerned that the Commission has devised a rather blunt policy instrument that would not be very effective in achieving its objectives and would have too many unintended consequences.

Admittedly some of the more subtle policy instruments in Pillar 2 have not always worked well in terms of additionality, i.e., achieving something that would not have been achieved without spending public money. Devising policy instruments that make a difference without too many side costs is not easy, but the effort needs to continue.

The linked report also refers to the enhanced role of the European Parliament in the decision-making process. This may be an advance for democracy, but not necessarily for coherent policies and effective reform.

Doha lite?

The recent G-20 summit was understandably dominated by the eurozone crisis so little attention was paid to the fact that leaders decided to effectively abandon all hopes of achieving a full blown Doha Round settlement and instead see if they could achieve a 'Doha lite'.

Many analysts think that they will achieve nothing. Either way this effectively means the end of 'Rounds' as a way of progressing international trade negotiations. Given the economic backdrop, it also means the end of further breakthroughs towards liberalisation, although the dispute settlement process could still spring some surprises, particularly in relation to agriculture.

The trend towards bilateral deals will be reinforced. Compared with a multilateral framework, such deals tend to be more asymmetrical, so this is not really a gain for the Global South, not that least developed countries got that much outof multilateral negotiations. It was agricultural exporters like Brazil that stood to benefit.

The global financial crisis has obviously shifted priorities over this issue. However, at the very least a ‘Doha-lite’ deal for developing nations will be discussed at a World Trade Organisation meeting in December this year, with an aim of reaching a consensus in time for the 2012 G20 summit in Mexico.

Will progress be possible in agriculture? The EU may stick to its promise to phase out export subsidies, although possibly later than planned given that CAP reform is likely to be delayed. However, EU is unlikely to give much more ground on market access and the US will defend politically sensitive subsidies for crops such as cotton.

It may be that a shortage of government money will now drive reform, but budgetary changes are open to fudging and they never provided as sure a pressure for reform as international trade negotiations. At the end of the day, manufacturing and service industry interests did not want to see potentially lucrative deals derailed by agriculture. These trade offs were one of the benefits of a multilateral negotiating framework.

Good objective, wrong means

Choosing the right policy instrument to achieve your policy goal is of central importance in designing and implementing an effective agricultural policy as I argued in an article in West European Politics in 2010:
Policy instruments

I am very much of the view that environmental policy needs to be embedded in the CAP, but one has to do this in a way that achieves ecological objectives without unnecessarily undermining production.

The Commission's notion of a 'balanced' rotation seems sensible on the surface. After all, farmers rotate their crops for agronomic reasons that have been understood for centuries, at least in principle.

Monocultures of wheat and oilseed rape (canola) crops have been becoming more extensive in Europe and they can have a landscape impact, although personally I quite like the yellow of oilseed rape.

Part of the Commission's motivation seems to be an idea that rotation would cut the pesticide bill, but there are other ways of doing that. It could also disproportionately hit farmers on heavy soil who rely on wheat/wheat/rape rotations.

The proposals require farmers to grow at least three different crops, with none exceeding 70 per cent of the total farm area and the third not less than 5 per cent.

Not only is this meddling in business decisions, it also could hit small farms very hard as only those below 3 hectares are excluded. Member states with many small arable farms may have something to say about this.

In the meantime the Commission really needs to send this proposal back to its Daft Ideas Department and return to the drawing board.

The last one left standing

Last week East Malling Research kindly invited me to give the annual Amos Memorial Lecture at the research station. My theme was 'Food: Safe, Sustainable, Sufficient?' They videoed the lecture so I will post a link if it becomes available, not that I can see it going viral.

I was able to have a short tour of the station which is effectively the last horticultural research station we have in England. As the Applied Crops Research Centre, what was Warwick HRI is doing its best, but it is a shadow of its former self. There are a few post-1992 universities who do some work, but they lack economies of scale and the concentration of different kinds of expertise which allows people to bring together various forms of knowledge to solve problems.

East Malling is fortunate in the sense that its land is owned by a trust which gives it security of tenure and provides it with some income. Its centenary is approaching and an appeal for a new laboratory is to be launched.

Applied research involves identifying the problems faced by growers and farmers and working with them to provide long-term, sustainable solutions. It enables productivity to be improved but in a sustainable way. At East Malling, they are doing important work on water conservation which is going to be one of the biggest challenges for world farming in the decades ahead.

Applied research is a practical way of tackling problems of food security. Diversion of some of the money spent on the CAP for this purpose would yield substantial dividends.

Is Europe losing touch with reality?

Stefan Tangermann

Is Europe losing touch with reality? One might think so given the surprise Greek decision to hold a referendum on the austerity package. The fear of contagion is very real and if the euro is confined to a small core of northern member states, the single market project will be undermined. One of the main justifications for creating the euro was the need to avoid competitive devaluations between member states.

It also ended the nonsense of green money, now largely forgotten, but one of the more bizarre and distorting aspects of the CAP (which is saying something). Somewhere in Brussels we should have a sculpture commemorating the switchover mechanism as an awful warning.

However, it is also a question that leading agricultural economist Stefan Tangermann has posed in relation to the CAP reform proposals announced last month.

The former OECD director for trade and agriculture argues that the reform proposals do not reflect the economic realities that Europe currently finds itself in. It is unfortunate that the policy planning calendar dictates that the European Commission must make vital decisions on the CAP through to 2020 but Tangermann claims the proposals fall short of an adequate response to perhaps the biggest crisis the trading bloc has ever faced.

But he is not alone in his criticism of the reform plans. It appears that dissatisfaction with almost every aspect of the proposals is rife and MEPs were given the opportunity to vent their frustrations at the Special Committee on Agriculture (SCA) meeting in Brussels last week.

In stark contrast to farm commissioner Dacian Cioloş’ assertion that the reform proposals would simplify the various administrative mechanisms within the CAP, MEPs claimed that the European Commission’s proposals for CAP reform are costly, complex and fail to distribute fairly between member states.

Ciolos is in danger of being seen as the least effective farm commissioner since Réne Steichen who was also seen as a trojan horse for France. Like Ciolos, he was educated in France but at the end of the day he turned out to be somewhat less beholden to France than expected.

The European Parliament is also concerned about moves by national governments to cut almost €500 million from CAP spending in 2012 last week. Instead, they re-affirmed their backing for the European Commission’s draft budget plan issued in April, which proposes a 2.3 per cent CAP budget rise within a wider 5.2 per cent year-on-year increase in commitments.

This is, of course, a dangerously nonsensical proposition against the background of serious budget deficits in Europe. If there is a collapse of the eurozone it will look even more so.

'Greening' measures prove controversial

The 'greening' measures proposed in the Commission's CAP reform plans attracted criticism from several countries at last week's Farm Council in Luxembourg.

Defra secretary Caroline Spelman argued that the measures to take 7 per cent of land out of production amounted to a return to set aside. There was too much focus on taking measures in Pillar 1 rather than proven approaches in Pillar 2: Pillars

The Commission maintains that the measures are aimed at marginal land, but it does seem to be a rather blunt policy instrument. Having said that, not everything done in Pillar 2 has been cost effective by any means.

CAP reform proposals have no friends

The Commission's proposals for the reform of the CAP have not gone down well in any quarter and have managed to draw fire from Britain and France: Reform

Of course, it was ever thus and one is never going to devise a reform that is welcomed in all quarters. However, Franz Fischler as commissioner had a new vision for the CAP which was more adjusted to contemporary realities. He also showed great subtlety in the tactics that he used to secure some real changes in the CAP, albeit that much was left to be done.

One suspects with the present reform that it very much 'business as usual' with some greening at the edges. It is far from clear that the 'greening' element has been well designed and will actually achieve its aims and here the French have a point.

Similarly, the capping of payments has a populist appeal as it seems to target 'fat cat' farmers, but once again it reflects the confusion and uncertainty that surrounds what the real objectives of the CAP are. Is it a social policy, is it about food security or is it about a competitive and efficient agriculture? One doubts whether it is about the last objective.

No great suprises in CAP reform proposals

There are no great surprises in the widely leaked Commission proposals for reform of the Common Agricultural Policy released today: CAP reform

Also, not surprisingly, UK ministers have criticised the proposals as inadequate.

The reform proposals have been overshadowed by the eurozone crisis which has understandably been dominating the EU agenda and media discussion. Its outcome will shape the future of the EU.

However, whatever shape the future eurzone takes, it is likely that budgetary pressures will ultimately play a substantial part in influencing the outcome of the CAP reform discussions.

CAP reforms 'turning clock back'

Farm minister Jim Paice has luanched an outspoken attack on farm commissioner Dacian Ciolos, accusing him of 'turning the clock back' in his proposals for CAP reform.

Paice was addressing a fringe meeting at the Conservative Party conference. He hinted at disappointment that the efforts that he and secretary of state Caroline Spelman had made to build relationships in Europe had not paid off.

Read more here: CAP reform

Dual blast on CAP from Court of Auditors

The Court of Auditors has delivered a dual blast at the CAP. The first report considers the £2.5bn of spending a year on agri-environmental schemes. It argues that poor design makes it difficult to assess the extent to which agri-environmental schemes achieve their goals: Agri-environmental

The Court found that objectives set by the member states were numerous and not specific enough for assessing whether or not they have been achieved. Although the environmental pressures are identified in rural development programmes, they cannot be easily used to provide a clear justification of agri-environmental payments.

There were considerable problems about the relevance and reliability of management information. In particular, very little information was available on the environmental benefits of agri-environmental payments.

The report is significant given the declared intention to 'green' the CAP in the next stage of reform.

In a report just released the Court has criticised the mechanism used by the European Commission to recover undue payments made under the EU's €55 billion-a-year Common Agricultural Policy (CAP): Recovery

The ECA found that 90 per cent of the amounts listed as recoveries in the EU's annual accounts represented reimbursements from national budgets rather than actual recoveries from CAP beneficiaries. Its report says that while this approach protects the financial interests of the EU, it diminishes the deterrent effect of recovery from beneficiaries.

Following an earlier report in 2004, changes implemented in 2006 had improved matters by providing more accurate information and greater detail on debts and recoveries at member state level. However, the system had certain shortcomings such as running the risk of encouraging the write-off of debt as early possible or reporting debt as late as possible.

There were also, not surprisingly, variations in the conduct of member states. This meant that debts were recognised at different times, reported figures were not comparable, interest was applied inconsistently and the point in time at which debts could be witten off varied significantly. All of this had a negative financial impact on the EU budget.

OECD calls for farm subsidies to go

The OECD is arguing that currently relatively high farm prices provide a window of opportunity to scrap farm subsidies: OECD

If only it were so, but the underlying politics does not permit it. Farmers will point out that input prices have also risen and mobilise food security arguments to justify the need for subsidies. Veteran Farmers Weekly columnist David Richardson is even waving the threat of food rationing in the latest attempt to alarm politicians and consumers.

In fact the rise in commodity prices has reduced the share of farm incomes that comes from subsidies. Across the OECD countries this fell from 22 per cent in 2009 to 8 per cent in 2010. It is consistent with a long-term declining trend.

This is not because subsidies have been cut in response to the fiscal crisis, but because of a reduction in countercyclical payments. Even so the 34 OECD member countries spent $277bn last year subsidising their farmers. Subsidies account for about 9 per cent of US farmers' income, but the figure is 28 per cent in the EU.

China has jumped on the subsidies bandwagon. The amount paid out last year went up to a record $147bn, an increase of 40 per cent on the preceding year. This pushed the share of Chinese farm income drawn from subsidies to 17 per cent, near the OECD average of 18 per cent. Direct payments to grain farmers in China have been consistently increasing since their introduction in 2004.

Britain and Poland have issued a joint statement calling for CAP reform and in particular less emphasis on Pillar 1. Poland joining the reform camp is a step forward, although it is interesting that one of the stipulations is a convergence of direct payments across the EU. See more here: Poland

Sugar quotas to go

The EU is to end sugar quotas and guaranteed minimum prices in 2016. This represents a one year extension after the scheduled end to quotas to give producers more time to adjust: Sugar

It is hoped that the change will boost output and reduce prices by as much as 8.2 per cent. It will also align the EU more closely with world markets, boosting exports and reducing imports.

It has a taken a long time to reform the sugar regime, but this is another step towards a more market oriented system.

Greening element in CAP reform increased

The European Commission is proposing to increase the greening element in the CAP reform in relation to Pillar 1 measures: Greening

The proportion of farmland to be placed in ecological measures would be increased from the previously proposed 5 per cent to 7 per cent. Such features include fallow terraces, landscape features, buffer strips and afforested areas.

It is also proposed that farmers should grow a third arable crop covering at least five per cent of their farmed area. This seems to be an intervention in commercial judgments by the farmer which may not bring commensurate environmental benefits despite concerns about monocultures.

Needless to say, farming unions are not happy with these proposals which they are presenting as a threat to food security.

Farm incomes up

Farm incomes are up in the EU, but there is considerable variation across member states. EU farm incomes jumped by almost 13% last year, thanks to higher crop and milk prices, but the UK was among just seven member states to see a drop.

The biggest increases in earnings are attributed to Denmark (an astonishing 57% higher), Estonia (+46%), the Netherlands (+39%) and France (+34%). The UK, however, recorded income 6% lower than a year earlier. It should also be noted that key input prices such as fuel and fertilisers have been on an upward trend.

In the UK's case, exchange rates have been a significant factor. The 2010 statistics reflect a decline in the exchange rate at which payments through EU direct aid schemes were converted from euros to sterling. In the UK, this meant a fall in the value of the Single Payment Scheme and other payments of some 12 per cent.

Interestingly, the statistics reveal that a mere 15% of EU farmers claim 85% of CAP subsidies.

The same figures also show that farmers in general are still relying heavily on CAP subsidies – Pillar One and Pillar Two funds made up 42% of farm incomes last year, up from 39% in 2008. This shows a worrying dependence on subsidies and illustrates why it is so difficult to dismantle them or even reduce them substantially.

Farm subsidies face cut in US

There's nothing like a budget crisis for focussing the mind and it looks as if farm subsidies in the US may be facing cutbacks, even the politically well entrenched cotton subsidy: Subsidies

Quite how those pressures will play out in the tortuous EU budget process is another matter. In the US there is a direct trade off with spending on health and education. In the EU these are domestic budgetary responsibilities.

France seems confident that the existing budget can be defended, but there may well be some trimming.

Birdlife International critique greening delivery mechanisms

Birdlife International have understandably welcomed the Commission's stated intention to devote 30 per cent of Pillar 1 funding to 'greening' the CAP. They think that it could make a real difference in terms of the delivery of public goods by the CAP.

However, as always the devil is in the detail and they think that some of the proposed policy instruments are not fit for purpose. Indeed, on a scorecard they fail six of the twelve and give an 'unclear' rating to the other six.

Read their report here: Birdlife

Defra tries to revive reform coalition

Defra is trying to revive a coalition of support for radical reform of the CAP, holding meetings with Sweden and Denmark: Reform

Of course any coalition would need a broader base of support. In the past the Netherlands has joined in and at one time a particular political conjunction in Italy which no longer exists attracted their support. Liberally oriented former Communist states might also be supporters, but they will be hoping to get higher payments out of any settlement.

In any case the real obstacle to reform is the determination of France to maintain subsidy and protection. It usually has the support of Germany as part of broader political trade offs.

Of course, if the eurozone crisis deepens, as it threatens to, all bets may be off.

Storm of protest greets 'capping' plans

A storm of protest from farmers and their representatives has greeted the leak of European Commission plans to cap Single Farm Payments (SFPs) to large farms. The proposals should have come as no surprise as the Commission sets out to meet imperatives to cut the CAP budget and make it superficially fairer. However, critics say that the move undermines the international competitiveness of EU agricultire.

Under the leaked proposals individual farmers receiving above €150,000 (£132,000) in payments would lose 20 per cent of that support with the amount increasing proportionately for those raising larger sums. There would be an overall limit of €300,000.

The cutbacks would not apply to the so-called 'greening' element of Pillar 1. They would also take account of farms with large workforces through a so-called 'salaried labour intensity' indicator. However, most large farms are relatively capital intensive and make extensive use of contractors who presumably would not count.

The Commission intends to introduce legislation to close a loophole that might be available to farmers by splitting up their holdings into separate legal entities or transferring payments to relatives. Some of them may have already done this or still have a period of grace to do so.

In a sense this is a shift in the direction of confirming that the CAP is essentially a social policy for marginal farmers. Competitiveness is a formal objective, but has always been given relatively little attention.

Not so sweet?

Warwick University's Ben Richardson takes a look at sustainability issues surounding the sugar industry: Sugar

What does the budget mean?

Sophia Davidova, president of the Agricultural Economics Society, offers her assessment (reproduced from the AES Newsletter):

The Communication from the European Commission on the budget for Europe 2020 is now in the public domain. Does it answer questions such as: whether the CAP budget will be consistent with the vision for future CAP developments; will the direction taken in previous CAP reforms for incremental increases in the funding of Pillar 2 be maintained or there will be a U-turn to what I call a ‘counter-modulation' towards transferring funds from Pillar 2 to Pillar 1; and to what extent will the CAP budget be maintained in real terms? These questions directly target the core justification for the CAP. But if there is no strengthening of Pillar 2, this may undermine the public value of CAP expenditure as a response to the priorities of the European citizens for ecosystem services and rural development.

The budget for the CAP for 2014-20 in 2011 prices is €372 bn, plus €15bn for research and innovation. Year on year the budget for ‘Sustainable Growth: natural resources' will decrease in real terms - by 10% from 2014 to 2020. On the other hand, expenditure on ‘Smart and inclusive growth' (including competitiveness and cohesion) will increase by 17.7%. The allocations plainly assume 2% annual inflation to maintain the budget for both Pillars 1 and 2 constant in nominal terms. The decline in the share of the total budget taken by total CAP expenditure will continue, reaching 33% in 2020 (from 39% in 2014).

It is difficult to say if this budget is a victory for the supporters of CAP and in particular Pillar 2, which recent rumours preceding the decision suggested. However, the lack of political will to rebalance funds in favour of Pillar 2 means that the EU will hardly be able to tackle the enormous rural and agri-environmental tasks ahead - unless we believe that mandatory Greening of Pillar 1 will deliver significant environmental public goods.

The budget could not be anything else than a compromise with such divergent interests amongst the EU-27. Many Member States, not just the UK, have criticised it as too generous. There will be debates on the own resource proposals, and what happens to the adjustments and rebates. It is also worth remembering that there are disagreements on the CAP budget even within the UK between government departments, and between DEFRA and the devolved administrations. Although a compromise, there is no certainty that these are the budgetary outlays that will be decided and implemented, since the European Parliament and the Council will have their say on the Commission communication. Thus, the uncertainty continues.