Further cuts in direct payments?

CAP direct payments look set to be cut back even further than the recent level agreed by EU governments, it emerged this week, as the budget needs exceed the available funds. Agra Europe reports that the spending gap is due to the 2014-2020 funding cuts agreed by EU leaders in February, along with the need to fund a new 'Crisis Reserve' for emergency market measures under Pillar One and also the final stage of subsidy phasing-in for 'new' member states.

This is likely to lead to the first instance of the ‘financial discipline’ mechanism kicking in since its inception in 2003, as the European Parliament is treaty-bound not to accept a budget deficit. What happens next is somewhat uncharted territory. However, hard pressed farmers are likely to react angrily.

CAP negotiations overview

My views on the current state of the CAP negotiations can be found here: CAP reform

Not sure I agree with the headline, as I think there is still a long way to go in terms of getting a more functional CAP, although it is the case that I am in favour of more discretion being given to member states in terms of how they implement the policy.

The likely main sticking points in the trilogue negotiations are discussed in this video: Trilogue

Parliament good for democracy but not for decision-making

The CAP is such an important part of what the EU does, not least in budgetary terms, that the European Parliament had to be made a decision-making partner if the institution is to mean anything in democratic terms. The downside is that it makes the whole process of arriving at an agreement on reform even messier and more complicated than it was before. Moreover, those most directly involved tend to represent farm interests. The end result is likely to be a reform package that is more incoherent than usual, and that is saying something.

After marathon talks in Brussels earlier this week, EU member state agriculture ministers finally came up with a CAP reform negotiating position, reports Agra Europe in what can rightly be seen as a significant step forward for the process. The Irish Presidency should be praised for its persistence in getting a deal between member states done halfway through its term in office and hopes are raised for a final deal to be set in stone before the end of June this year. 25 of the 27 states were in agreement after the meeting – Slovakia and Slovenia chose not to support it – and this is a strong mandate to take forward into trilogue talks with the Commission and Parliament.

Compromises were made on all of the major aspects of the policy including direct payments, the single CMO, Rural Development and Financing and Monitoring. However, it is apparent that the agreement will not put to bed the matter of CAP reform as many Parliament rapporteurs expressed dismay at many aspects of the Council position. The fact that the farm ministers did not rule out the possibility of ‘double funding’ for farmers 'destroys the legitimacy potential of greening,' according to the Parliament's rapporteur on direct payments post-2013, MEP Luis Manuel Capoulas Santos.

Agriculture Commissioner Ciolos meanwhile said he is 'delighted a clear consensus exists for 30% of direct payments to be linked to a more sustainable CAP'. The greening measures would be of a 'mandatory' nature under Council's stance as, penalties for non-compliance would go beyond 30 per cent of the Pillar One subsidy, he stressed. Yet Italian centre-right MEP Giovanni La Via, the Parliament's rapporteur on the 'Horizontal' Regulation, claimed losing the greening component of payments would be 'a high enough penalty' for farmers not complying with the new requirements. In other words, he wants to water it down.

Paolo De Castro, the Parliament's agriculture committee chairperson, probably summed up best the current state of affairs. 'There are some areas where the Council followed the Parliament's lead and others where we will have to negotiate intensively,' he said. The ‘intensive’ trilogue talks between the European Council, European Commission and European Parliament are provisionally due to kick off in early April with a hectic schedule of meetings between then and the end of June, when it is hoped a final agreement will have been thrashed out. What sort of agreement it will be remains to be seen, but one fears that it will be watered down.

Parliament has its say

The European Parliament has had its say on the CAP reform process and, as predicted by Agra Europe last week, has largely backed the amendments proposed by its agriculture committee (ComAgri). The majority of MEPs backed the four ComAgri positions on direct payments, rural development, financing and market measures as the momentum towards a final agreement, potentially within the timeframe of the current Irish Presidency, gathers pace.

However, some hurdles remain. The Parliament vote largely proved that there is still work to be done before a deal that satisfies all member states can be reached. Parliament did back a number of key aspects of the Commission proposals such as the ‘capping’ of Pillar One payments as well as its plans on ‘active farmers’. 'Capping' would have implications for UK farmers in particular, a number of whom operate on a large scale.

Key vote in European Parliament on CAP

Next week, the European Parliament will get to vote on CAP reform and the compromises agreed by its agriculture committee (ComAgri) back in January. It would seem to be the opinion of the majority within European agricultural circles that some form of consensus will need to be found at the vote if the CAP is to be reformed in time for 2014, reports Agra Europe.

But what are the chances of an agreement being reached? There are still a number of hurdles to be overcome if a deal between member states is to be reached. The biggest sticking points appear to be over the ‘greening’ of the CAP and what this should constitute, the capping of direct payments, the speed at which the EU should oversee the convergence of Pillar One payments between member states and the scope of coupled aid.

ComAgri chairman Paolo De Castro says next week’s plenary will provide MEPs with the opportunity to ‘fix’ the problems with the CAP reform process. He conceded that his committee may have made some 'mistakes' when adopting its position earlier this year but the vote will provide the opportunity to write these wrongs. Meanwhile, other MEPs, such as German European People's Party member Elisabeth Jeggle have told Agra Europe that many of her colleagues will side with the ComAgri compromises next week.

10 per cent real cut in CAP budget

It looks as if the outcome of the EU budget negotiations might be a 10 per cent cut in real terms in pillar one for UK farmers and a 22 per cent cut in pillar two: Budget Outcome

A similar estimate of a 9 per cent in CAP expenditure in real terms, with an even bigger cut in rural development expenditure, is made by Oliver Lee of Andersons' Farm Business Consultants: Extent of cuts

It is interesting that he notes that this would bring CAP expenditure down to 39 per cent of the multi-annual financial framework, bringing it below 40 per cent for the first time. Given that it was over 70 per cent in the 1980s, this does show that incremental change can make a difference. But it is still questionable whether anyone starting with a blank sheet of paper would want to spend over a third of the EU budget on the CAP.

A typical CAP compromise

The Irish Presidency offered an alternative to the European Commission’s proposals on the convergence of CAP direct payments within member states at Monday’s Farm Council, and it seemed to go down well with most of those in attendance reports Agra Europe.

The Irish proposal, that would only require member states to move partially to uniform area-based direct payments by 2020, was backed by a majority of governments at the meeting, although Farm Commissioner Dacian Ciolos made it clear he opposes the plan, criticising it for a lack of 'ambition'. He has a point, as it is a typical CAP compromise on the lines of 'make me pure, but not yet'.

All member states are to move towards a uniform payment per hectare at national or regional level by the start of 2019, the European Commission said in its CAP reform proposals, with a transitional period to apply up to 2018. But many member states feel this suggestion is too drastic and the consensus seems to be that a slower pace of transition is required.

CAP reform assessed

Here is a thoughtful and detailed look at the CAP reform proposals from the slow food movement: Slow Food

In particular there is a detailed consideration of the greening proposals. Their general view is that the proposed reforms do contain some significant gains for sustainability.

CAP budget reduced in size

The EU Council finally reached an agreement on the Multiannual Financial Framework (MFF) after marathon talks last weekend and it did not make for good reading for those who wanted to see an increase or real terms freeze in CAP spending reports Agra Europe.

The CAP budget agreed for 2014-2020 will be nearly €16 billion below what the European Commission wanted at €362.79bn − €277.85bn for Pillar One and €84.94bn for Pillar Two (P2). This is provided it is passed in a straight Yes/No vote by the European Parliament – the first time this has happened – as mandated by the Treaty of Lisbon, which came into force midway through the current 2007-2013 MFF period.

Under the Council agreement, rural development spending will be €7.03bn less than proposed, but the blow is to be softened for many member states, who are to get a ‘special’ P2 envelope as well as their share of the remaining P2 pot.

What this represents is the first time a CAP budget has been reduced in size but also an unparalleled degree of flexibility for member states over how they shuffle the financial resources dealt to them. However, no member state is going to escape the fact that restrictions on agricultural subsidies and state spending will be in place for the next seven years at least as the CAP enters an age of austerity.

Sterling fall boosts farm incomes

The weakening of sterling against the euro over the past four months potentially boosts UK farmers' single farm payment subsidies by £240m. For every 1p/euro change in exchange rates, the UK's single farm payments alter by around £40m. SFP accounted for around 15 per cent of UK farm incomes and can be an even bigger slice of profits. For example, over half the profits at Cooperative Farms, the country's biggest farmer, are down to SFP.

Currency fluctuations also affect market prices with a 1p weakening against the euro adding £200m to UK farmers' total income. For example, a farmer producing a typical wheat crop should get about £18 a hectare more from wheat sales with the euro worth 6p more. That's nearly ten times the impact on that farm's SFP.

The downside is that inputs such as feed, fertilisers and sprays could now be 7 per cent more expensive in sterling terms, if all the currency effects are passed on. Machinery could also be more expensive.

France gives some ground

France, the EU’s biggest beneficiary of CAP funds, had previously been in favour of opposing to any cuts to the share of CAP spending and instead favoured a freeze at 2013 levels in nominal terms (meaning a real terms cut) – a view supported by other member states such as Germany, Spain and Italy. However, President Francois Hollande now appears ready to accept a reduction after addressing the European Parliament this week and claiming that his main priority for the summit is to ensure 'expenditure levels that preserve our common policies'.

CAP spending 'will be reduced' compared to the European Commission's spending proposal, he conceded, adding this will provoke 'difficult restructuring for a sector that is essential [for France]'. Hollande’s speech could well pave the way for an agreement between member states and signal that a compromise agreement is there to be had. Whether it will be enough to appease those states looking for deep budget cuts such as the UK, Sweden and the Netherlands remains to be seen.

France’s apparent move away from its pledge to fight for a nominal freeze in the CAP budget has not gone down well with farming groups in the EU, with umbrella organisation Copa-Cogeca demanding a freeze at a 400-strong meeting in Brussels on Wednesday.

A good survey of French interests, and changing perceptions, of the CAP can be found here: France

Is a CAP deal possible?

The next key phase of the CAP negotiations occur in the context of the budget negotiations at the EU summit on 6/7 February with spending on agriculture remaining a major stumbling block. A further summit is due in mid-March. The Irish presidency needs a deal on the budget agreed by the Council and Parliament by the end of March if it is to have any hope of securing a substantive CAP deal by the end of June

The recent vote in the European Parliament agriculture committee was a first step towards a CAP deal, although if it doesn't like what eventually emerges then the Parliament can veto it. It should be noted that the committee backed capping of support at £250,000 with payments reducing on a sliding scale after £125,000 which will hit many farms in the UK.

Some are concerned that the proposed extension of discretion to member states (and regional governments) in many areas of the CAP will create more of an uneven playing field, undermining the single market. Others would argue that such discretion is not only necessary to make reform politically palatable, but also reflects the geographical diversity and range of challenges encountered in what will soon be an entity with 28 member states with very different agricultures.

Is there still life in fat taxes?

Bruce Traill, the president of the Agricultural Economics Society, writes in their latest newsletter: 'Denmark is abandoning its short-lived experiment with the world’s first fat tax just as the use of fiscal measures to improve diets and offset the social costs of unhealthy eating appeared to be gathering momentum; the UN Special Rapporteur on the Right to Food, the National Heart Forum and the European Heart Network, have called for the use of various forms of food taxes and subsidies in the past year. Even David Cameron floated the idea in 2011.'

'The Danes taxed products with more than 2.3% saturated fat content at 16 KR (c£1.75) per kg of saturated fat (13% of current retail full-fat butter prices). This was deemed sufficient to have driven hordes of Danes into the welcoming arms of German and Swedish retailers, "exporting" 1300 jobs (according to the Danish Food Workers Union). It’s a pity there wasn’t time to evaluate the impact of the measures on consumption (Copenhagen University’s finding of a 20% fall in purchases of fats and cooking oil in the 3 months from introducing the tax were skewed by hoarding in the run up to the tax and cross-border shopping).'

'Small taxes (and subsidies) on foods or nutrients are never likely to have a big impact on consumption and health, but they do raise a lot of money and are cost effective according to OECD; the Danish tax raised about £150m in a year, the French soda tax a similar amount. Fiscal measures also give incentives to producers to reformulate their products. The EU EATWELL research project recommends ring-fencing revenue generated by a tax for use in other cost-effective healthy eating programmes.' [Although one might add that politicians are never keen on hypothecating revenues because it restricts their freedom of manoeuvre.]

'The US Supplemental Nutrition Assistance Programme and Women, Infants, Children schemes, targeted at subsidising healthy foods for poor consumers, would be good candidates. They have been shown to be highly cost-effective and would be good models for wider adoption in Europe. As they specifically target disadvantaged groups, they partially address a criticism that fiscal food measures are regressive. And if the taxes were applied Europe-wide, the Danes would have to travel a long way to find cheap butter.'

Irish presidency searches for consensus

Monday’s Farm Council meeting in Brussels kicked off with Irish agriculture minister Simon Coveney reaffirming that his country’s Presidency’s 'ambitious' aim will be to reach a consensus among member states on a 2014-2020 CAP by March 18-19 this year, with European Parliament approval by June reports Agra Europe. He believes there are '30 or so' elements of the reform proposals still dividing member states, which he stressed was a 'manageable number', while EU Farm Commissioner Dacian Ciolos said the proposed timetable was 'difficult but not impossible' (which means that it probably is unattainable).

Coveney urged his fellow ministers to start moving from 'fixed' to 'compromise' positions so the Council can reach a common position. 'This hasn't happened yet and it needs to start happening now,' he warned, noting wide support for Dublin's work programme and the 'extraordinary' job by the Parliament's agriculture committee (ComAgri) to establish its negotiating position last week.

Ministers raised a number of lingering individual concerns at Monday’s meeting, notably the need to make the 'greening' requirements of the proposed reforms simple and workable and the risk to certain sectors posed by the planned equalisation of subsidies within member states or regions by 2019.

The plan to tie 30 per cent of direct payments to new environmental requirements - and for recognition of 'equivalent' measures - remains a big concern for many countries, with the Dutch delegation warning there is still 'a lot to do' at both a technical and political level. The UK, Denmark, Latvia, Estonia and Slovenia all reiterated calls for states to have more flexibility to implement greening, though French agriculture minister Stéphane Le Foll urged ministers to focus on reaching a compromise based on the Commission's proposals.

Briefing on CAP developments

Here is a video briefing by agricultural journalists on latest developments in the CAP as the Irish presidency starts: Briefing

Not sure if all the foot traffic in the background is meant to provide authenticity, but it could be distracting.

Farmers could not survive without subsdies

Almost three quarters of farmers say they could not survive without subsidies, according to a Farmers Weekly poll: Subsidies

How does one wean farmers off their subsidy dependence so that they become more like any other business that relies on returns from the market? No one is suggesting that they should be withdrawn overnight. The official Defra position is to phase out the single farm payment and that is resisted by most other member states.

Part of the solution must to be to ensure that farmers are better able to earn a return from the market through competition policy measures that redress the balance between them and supermarkets. But the politics of that are complicated as supermarkets deliver cheap food to consumers whose budgets are already under pressure.

Defra boss upsets farmers

Defra secretary of state Owen Paterson has upset farmers by calling for direct payments to them to be scrapped as possible. He argues that taxpayer subsidies should be limited to public goods: Paterson

His predecessor had a farm organisation background so such plain speaking may come as a shock.

The Irish presidency

In this video interview, Irish farm minister Simon Coveney looks at the challenges facing the Irish presidency in terms of securing CAP reform: Presidency

'Could do better' is end of term report

As 2012 draws to a close and the Cypriot EU Presidency concludes, agriculture ministers and MEPs across the 27 member states took time this week to reflect on how CAP reform negotiations have gone over the past six months.

Agra Europe reports that there was a general feeling of satisfaction that significant progress has been made but also the admission that much work still needs to be done in the coming six months under the Irish Presidency.

On Tuesday, ComAgri announced that from the near 8 000 amendments to the European Commission’s CAP reform proposals sought by member states, the total has now been whittled down to just 100 compromise agreements, which will be voted on in January. A final vote will only take place once the EU’s next long-term budget has been agreed (likely to be early February, 2013).

The outgoing Cypriot Presidency released its progress report on its six months in charge of CAP reform, praising the 'positive spirit' of the negotiations over the period, but observers would still probably come away with a nagging feeling of ‘must try harder’.

As Irish farm minister Simon Coveney reiterated, 'nothing is agreed until everything is agreed,' admitting it would be a 'big ask' to get a CAP deal by June, which is widely seen as the deadline if parts of the new policy will be ready for 2014.

Many ministers were openly frustrated at the lack of progress on the EU’s 2014-2020 budget, which is undoubtedly the major hurdle for the reform of the CAP. Of course, the amount spend on the CAP is a hurdle in the way of a budget agreement in the eyes of some member states, not least the UK. Beyond that there are still obviously problems to be ironed out with the ‘greening’ element of the proposals as well as questions about the plan for the internal convergence of direct payments. What that means is that some get more, but perhaps not as much as they hoped for, and others get less. That's never an easy balance to draw.

France determined to defend CAP budget

The EU budget for 2013 was finally signed off this week after the European Parliament approved a compromise agreement between member states that will give the CAP slightly less next year than was originally proposed by the European Commission, reports Agra Europe

CAP payments for 2013 will total €56.44 billion, a marginal increase from the current year but €350 million lower than what the Commission asked for. This leaves the Pillar One direct aid and market-related payment kitty at €43.93bn, up 0.13 per cent from this year, with the Pillar Two rural development budget set at €12.5bn - 3.38 per cent greater than in 2012.

On the subject of the next long term budget, France set out its stall against any cuts to the CAP budget for 2014-2020 and called for greater reductions from elsewhere in order to appease countries such as Sweden and the UK, who are fighting for greater reductions than are currently on the table. If the CAP is left inviolate, this would mean quite substantial cuts elsewhere, in particular in programmes that might do more to stimulate the growth of the European economy than the CAP.

As the biggest recipient of CAP funding within the EU, France is determined to pull back further funds into the agricultural budget after European Council President Herman Van Rompuy proposed a less drastic reduction of €17bn at the EU budget talks, softening on the €25bn he had earlier proposed.

But 'several billion' euros will still need to be restored to the budget if it is to satisfy France, the country’s European Affairs minister Bernard Cazeneuve told journalists at a European Parliament plenary session this week. But no specific amount to be recovered for the CAP is being aimed for, a spokesperson for the French Agriculture Ministry told Agra Europe.