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Lesson 6: The Common Agricultural Policy

Author: Carlos San Juan Mesonada

Friday 8 September 2017, by Carlos San Juan


Common Agricultural Policy and reforms

CAP reform alternatives

by Carlos San Juan Mesonada. November, 2018

The agrarian policy is being criticized from different points of view that usually include reform proposals for the next budgetary horizon 2021-2027. In particular, within the EconPol consortium, a series of working documents have been presented (Heinemann, F. 2017 / 01a, Heinemann, F. 2017 / 01b) in which it is about cementing proposals to redistribute the 400 billion budgeted in the current expenditure of the CAP to finance other social policies in the 2020 horizon.

In fact, these proposals, as already explained in the initial report, have had a first effect on the agrarian budget proposal that the Commission sent to the Council of Agriculture Ministers, since it contained a reduction in the budgeted expenditure for the CAP of between 6 and 10 percent from the previous budgetary perspectives.

2.1.1 Proposal of May 2018 of the Commission on the 2021-2027 budget

On June 1, 2018, the European Commission presented the legislative proposals on the future of the Common Agricultural Policy (CAP) that had advanced in May 2018.

The legislative proposals aim to adapt the CAP to the future as explained by the Commission itself.

• a Regulation on strategic CAP plans

• a single Regulation on the common organization of the markets (CMO)

• a horizontal regulation on financing, management and monitoring of the CAP >>

In this Commission proposal (June 18, 2018) he stresses that a CAP strategic plan must be prepared for each Member State

b. each plan would specify how the Member State would use CAP funding to meet those needs, including the instruments it would use, and establishing its own specific objectives

c. each strategic plan of the CAP would require the prior approval of the Commission to ensure its consistency with the objectives of the entire EU

d. each year, the countries would present a report of results to the Commission to indicate how they have progressed towards the established objectives in relation to the expected results >>.

To see the Commission full text CAP future 2020. Commission, 2018

_____________

i) Reading: About the 2014-2020 budget

The changing nature of agricultural and rural expenditure

Author: Albert Massot, European Parliament. 2014

A.General overview

The share of the European Union budget accounted for by agricultural spending has been steadily declining in recent years. Whereas the CAP represented 66% of the Community budget in the early 1980s, it accounts for just 37.8% of it in 2014-2020

Since 1992, the date of the first significant overhaul of the CAP and the explosion in the volume of direct aid, agricultural expenditure has remained stable in real terms, other than in 1996 and 1997 (as a result of the BSE crisis and the accession of three new Member States). Between 1990 and 2020, therefore, the budgetary cost of the CAP, when set against EU gross national income (GNI), will have decreased from 0.54% to an expected 0.34%

B.Allocation by expenditure category and by sector

91% of expenditure under the first pillar (EUR 44.3 billion in 2012) (5.2.10, table V, column 1) consists of direct aid to farmers (EUR 40.8 billion). The sharp increase in direct aid since 1992 has resulted in a corresponding fall in other EAGGF Guarantee Section/EAGF expenditure: export subsidies account for just 0.3% (EUR 146.79 million) of the total budget and the cost of other intervention measures (storage, measures to restructure the sugar industry, promotion and information actions, and veterinary and phytosanitary measures) amounts to just EUR 3.8 billion (8.5% of the total).

The three sectors which used to receive most funding under the EAGGF Guarantee Section were arable crops (cereals, oilseeds, and protein crops), beef, and milk products. After the 2003 reform (5.2.3 and 5.2.5) and the resulting decoupling of aid from production, the top expenditure item was payments to farms (82.5% of the EAGF total in 2012), followed by direct aid linked to production (8.6%) (5.2.4).

C.Distribution by country and by type of farm

As shown in Table V, column 1, relating to the financial year 2012 (5.2.10), the largest EAGF recipient is France (16.8%), followed by Spain (12.1%), Germany (11.6%), and Italy (10.6%). As far as the EAFRD is concerned, however, Poland is the top recipient (12.8%), followed by Germany (9.7%), Spain (9.7%), and Romania (9.3%). It should be noted that new Member States (EU-12) have had little influence on the EAGF (16.3%), given that direct payments are gradually being aligned. However, they are already receiving a significant share of EAFRD funding (37.9%), in accordance with the priority being given to the modernisation of their agricultural facilities and the development of their rural areas.

Illustrating the uneven distribution of CAP direct aid at farm level: 79.73% of CAP beneficiaries in the EU-27 received less than EUR 5 000 in annual payments in 2012, giving an aggregate amount equivalent to 15.5% of the total direct aid paid out under the EAGF.

By contrast, a very small percentage of farms (126 460 out of a total of 7.5 million, i.e. 1.68%) each receive more than EUR 50 000, giving an aggregate amount equivalent to EUR 12.87 billion (31.48% of the total direct aid paid out in 2012). Countries with a higher percentage of large farms (or firms) which receive money under the CAP are Denmark, France, the Czech Republic, the United Kingdom and Slovakia.

This state of affairs obviously calls into question the legitimacy of CAP aid when set against the values espoused by European society as a whole.

The main changes to the Commission proposal presented in May 2018 can be summarized as follows:

II. News in the draft of budgets 2021-2027 according to the proposal of the Commission of May of 2018 Commission, 2018

i. Modulation of direct aids and a maximum ceiling per farm is introduced

ii. It allows farmers and rural communities to submit eligible R & D projects. A specific item is included to finance R & D

iii. The use of Big Data and new management and control technologies are encouraged, for example to monitor crop rotation so that compliance with the objectives necessary to receive direct payments can be verified

iv. The digitization of rural life is favored

v. An EU platform will be developed to achieve effective management of agricultural risks.

2. The possibility of national co-financing of direct aid to farmers is opened

This proposal was rejected initially by the Ministers of Agriculture and the Commission is pending to submit a new re-prepared budget that will be negotiated again in the Council of Ministers. In the meeting of the Board of 15/10/2018 the "strategic plans of the CAP" were discussed. Initially the budget 2021-2027 includes 365 thousand million euros and allows the MS to transfer up to 15% of the direct payments to rural development programs. In addition, MS can transfer an additional 15% from pillar 1 to pillar 2 for environmental measures and mitigation of the effects of climate change without co-financing. 9 CAP objectives are indicated for the whole EU, but greater flexibility is introduced so that national governments can choose the most appropriate tools to achieve these objectives. Each MS must present a Strategic Plan that must be approved by the Commission. Subsequently, each EM must submit a Compliance Report of the Strategic Plan that shows the progress made according to a series of specific results indicators. The Commission will review these compliance plans and take the appropriate actions in view of the results.

2.1.1.1 Modulation

Direct payments will be reduced from € 60,000 and will be limited if they exceed € 100,000 per operation.

However, it seems that these limits do not refer to the value of production but to the margin of exploitation once labor costs have been discounted. This way of calculating the modulation of the aid in principle would be less penalizing for the farms that generate employment. However, it can raise a competitive barrier for export agriculture if inputs are not included in the calculation of operating margins.

In export-oriented Mediterranean agriculture, more intermediate inputs are generally used per unit of product than in continental agriculture, so if the calculation of the operating margin for the purpose of modulating direct aids does not include intermediate inputs, it is automatically generated a bias in favor of continental agriculture. In addition most of the Spanish exports (fruit and vegetables, olive oil, wine, ...) are produced in irrigated agriculture (also intensive inputs per unit of product). For this type of crops, not only direct aid but irrigation costs that include both water and energy are key. For this reason a specific section is dedicated to the analysis of water taxation regulations for irrigation since it is a key factor for international competitiveness.

The EconPol proposals have also been included in other measures because specific budgetary quotas are reserved, in addition to the young farmers, for environmental and agro-climatic actions. The latter should receive at least 30% of the national rural development funds and the Commission expects that 40% of the total budget of the CAP will contribute to the financing of mitigating measures for climate change.

In general terms, what are appreciated are less and less subtle movements to include more and more funds specific to other policies (environmental, innovation and social) within the CAP heading. But above all, what is most relevant from the point of view of the political economy of the reforms of the CAP is that it has gone from discussing how much the budget would grow to seeing how the budget cuts are distributed. These cuts initially could be between 6 and 10% globally.

See the full text in the:

ii) Reading:

Financing of the CAP Massot, 2018

Attached documents


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