Bridges Weekly Trade News Digest • Volume 14 • Number 36 • 20th October 2010
Leaked EU Proposal for Ag Subsidy Reform Criticised by Farm Groups, Development Campaigners
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Leaked draft proposals from the European Commission for post-2013 farm spending have drawn fire from environmentalists, development agencies and others seeking more ambitious reforms, as well as from farm groups fearing increased costs resulting from new environmental requirements.
The unofficial proposals plan to maintain the bloc’s substantial farm subsidy scheme over the seven-year budgetary cycle, while refocusing spending on more clearly-defined policy outcomes such as environmental goals.
Prepared by the Commission’s Directorate-General for Agriculture and Rural Development, the draft document recommends that a future Common Agricultural Policy (CAP) for Europe should focus on three objectives: viable food production, sustainable management of natural resources, and balanced territorial development. The leaked text was posted to the capreform.eu website on 8 October.
The proposal argues that, in order to achieve viable food production within the EU, a future farm policy needs to contribute to farm incomes, and help EU farmers to face competition from the world market (including in areas with natural constraints). It suggests that the CAP needs to provide environmental public goods, foster innovation, and enable farming to mitigate and adapt to climate change. Finally, it sees agriculture as important for supporting rural employment, promoting diversification and contributing to the “attractiveness and identity of rural areas”.
Policy instruments
The outline communication proposes maintaining a decoupled basic income payment for all farmers, plus additional support that would be linked to environmental measures. EU member states would retain the discretion to provide small amounts of production-linked support at the national level, the document suggests, and farmers in areas less conducive to agricultural production would also continue to benefit from additional payments.
The document suggests that the EU maintain “a two pillar structure” for farm support, with one pillar covering support paid to all farmers on a yearly basis and another covering other shared European objectives, such as rural development. To cope with “income uncertainties and market volatility”, members would also be able to make use of a new “risk management toolkit,” which would include policy options “ranging from a new WTO green box compatible income stabilisation tool, to strengthened support to insurance instruments and mutual funds.”
The Commission proposes establishing a new ceiling on direct payments to large individual farms, in a bid to improve the much-criticised concentration of support on the largest farms - although this measure could also take into consideration the extent to which large farms contribute to rural employment. In a bid to respond to criticism from the European Court of Auditors, payments would be limited to “active farmers.” In recent months, transparency campaigners have highlighted the extent to which payments go to large landowners and food processing firms, and reported that some of the beneficiaries of taxpayers’ largesse include groups such as accordion and billiard clubs.
The leaked document proposes introducing “more equity in the distribution of direct payments between Member States,” although it appears to reject proposals for a single flat rate direct payment available to all producers. Currently, payments are skewed away from farmers in the Eastern European countries that most recently joined the EU, a situation which their governments seek to rectify. Instead, the proposal floats the idea that farmers in all member states could receive on average a minimum share of the EU-wide average level of direct payments.
Three options for reform
The draft outlines three possible reform scenarios: an “enhanced status quo” option, a “radical” option abolishing market and income support, and a mid-way reform option focused on “more balanced, targeted and sustainable support.” The impact of each option will be analysed before the Commission makes a final decision on its CAP proposal, the draft suggests.
While the status quo option would be restricted to “limited improvements in specific areas,” such as greater equity in the distribution of direct payments between member states, the draft suggests this could “arguably represent a missed opportunity” for reform. However, the document is even less enthusiastic about the radical option: if the EU were to abolish market and income support, and focus entirely on environmental and climate change objectives, it warns that this could “lead to a significant reduction in production levels, farm income, and number of farmers for the most vulnerable sectors and areas, as well as cause land abandonment in some areas and intensification of production in other areas, with serious potential environmental and social consequences.”
The mid-way option would ensure that the EU’s farm policy becomes more sustainable, the draft argues, and improve the balance between different policy objectives. More targeted measures would also “be more understandable to the EU citizen”. The size and complexity of the existing policy framework has been repeatedly criticised in recent years, and the draft acknowledges that simplifying existing measures would be helpful.
“Too early”
Officials familiar with the policy-making process warned that it may still be “too early” to comment meaningfully on the draft document. Although marked “version finale” (final version), it remains unclear whether the document has gone through intra-departmental consultations, or through vetting by other EU departments with responsibility for trade or development.
The document is also devoid of any figures on the size of the eventual budget for the bloc’s agricultural policy - a discussion which reportedly is due to take place between the EU’s badly squeezed finance ministers, with potentially important repercussions for agriculture. Furthermore, the draft gives no indication of the relative importance of the main policy instruments, such as the basic income support payments or the environmental subsidy component.
Initial reactions
The leaked document provoked a hostile reaction from COPA-COGECA, a European farmers’ group, which warned in a press release that “the Commission plans will increase costs even further for EU farmers, threatening their competitivity [sic] and economic viability”. The group advised that “reinforcing the economic production role of farmers must be central to the future CAP.” Environmental organisations, in contrast, have argued that a reformed farm policy must focus instead on the delivery of public goods such as environmental and developmental benefits.
In comments to Bridges, COPA-COGECA Secretary-General Pekka Pesonen cautioned against introducing additional environmental requirements on top of those that EU farmers have to comply with already. European farm income fell by 12 percent in 2009, Pesonen said, and increased costs of production could mean “farm income levels would plummet further.”
Ariel Brunner, head of EU policy at environmental group Birdlife International, told Bridges that the draft was “horribly timid.” While welcoming the overall direction of proposed reform, with a clearer focus on targeted measures and on delivering public goods, he also cautioned that plans to establish a new risk management toolkit covering income stabilisation and insurance “could become another monster very quickly.” Brunner also queried whether food security should be an overriding objective for the CAP, noting that “Europe doesn’t have an issue of food security,” while many developing countries face problems with hunger and malnutrition.
Some of his concerns were echoed by Nils Jakobsen, ActionAid’s head of policy and campaigns in Denmark. Jakobsen argued that the draft document does not “recognise the CAP has a negative impact - and is certainly trade-distorting - for developing countries.” He suggested that governments should reconsider the criteria determining which subsidies can be classified as ‘green box’ at the WTO - a category of payments that is exempt from any cap or reduction commitments, on the basis that they cause no more than minimal trade-distortion.
The Commission’s finalised CAP proposal is expected in November.
ICTSD reporting.
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For ICTSD analysis on how CAP reform could support achievement of the MDGs, please click here; and for a summary of ICTSD work on green box support, please click here.
You can find further analysis of the leaked CAP reform draft and the equally important conclusions drawn by the European Commission on reform of the overall EU budget at http://www.reformthecap.eu.