Future of the CAP Beyond 2013

With talks on the future of the Common Agricultural Policy (CAP) in full swing, Charlotte Johnston, ThePoultrySite junior editor, spoke to Tom Hind, Head of Economics and International Affairs for the National Farmers' Union (NFU) to find out what CAP holds beyond 2013.
calendar icon 24 February 2010
clock icon 13 minute read

Big questions are arising as to what the future of the CAP holds. The industry faces a number of challenges, can one policy encorporate all of them? Much of the debate will concern whether the policy remains fundamentally agricultural or moves towards rural development and environmental management. At these early stages, it appears there is conflict between member states.

There are many who would agree that the CAP is not so common. Will this change and is it perhaps more important to have a common policy framework in place?

Will rural development continue to be funded through modulation and what are the expected budgetary changes?

How important is the CAP to European producers and if it were to be abolished, what would happen?

"Increased productivity is the only way that the industry will be able to cope with rising demand, whilst facing the challenges of climate change and reduced resource availability."

CAP Benefits

"In terms of demand, the biggest challenges faced by the industry are a combination of the long term reality of the rising demand for food and market volatility. The supply challenges include responding to that change in demand whilst facing the challenges of climate change, water availability, soil erosion, infrastructure and post harvest losses," says Mr Hind.

"To sum up the challenges facing the industry in one word - 'productivity'. We know that productivity has to increase by 2050, and some of it will have to come from within Europe."

Mr Hind says that CAP should aim to see farmers make sustainable and profitable returns from the market. He believes that currently there is a negative aspect of the CAP, particularly for livestock farmers, because direct payments make up a large proportion of their income. Whilst recognising that this is not ideal, he believes that without CAP the situation could be a lot worse.

"We operate in a single European market, where agriculture is politically and economically valuable, more so in some countries than others.

"Without CAP, agricultural policy would be renationalised, which would lead to competitive distortion around Europe. Without a common agricultural political framework in place to support agriculture, countries like the UK – where there is perhaps less financial support for farmers – would seriously see competitiveness eroded."

To put the benefit to the public of CAP into context, Mr Hind says that CAP budget represents 0.43 per cent of EU GDP, where as agriculture contributes 1.9 per cent to EU GDP.

"The CAP must encourage competitiveness."

Agricultural and Food Policy versus Rural & Environmental Policy

With regard to the future of CAP, Mr Hind says that the big debate is whether CAP will remain an agriculture and food policy or whether it will move towards a rural and environmental policy.

The NFU see it as an agricultural policy to correct the problems within the agricultural sector. However there is no reason why it cannot be a policy that supports food production whilst helping farmers meet wider environmental challenges, says Mr Hind.

Direct payments still form the majority of the CAP budget. However, Mr Hind says that he thinks the UK may be encouraged to put more resources into pillar two, rural development and the environment.

Between member states there is a mixture of opinions and Mr Hind believes that a number of member states will see an attraction in the second pillar.

However saying that a strong defence was seen before Christmas when 22 member states met to discuss the future of a strong CAP which provides adequate resources to help the farming sector.

Whatever happens, he sees that the main challenge the CAP faces is making farmers more competitive. The CAP can stabilise incomes and help avoid the worse excesses of market volatility but encouraging competitiveness is of vital importance.

When asked whether he thought the CAP discourages competitiveness and allows inefficient production, Mr Hind said that yes this was sometimes the case, but again pointed out that the alternatives of no CAP would be worse.

Discussing the possibility of ensuring that direct payments were re-invested into the business, Mr Hind said that it would be nearly impossible to prove. "Yes it would be possible to top up direct payments for farmers who invest into their business, but it would be easier and just as effective to put the money into pillar two and provide grants or loans for capital work."

On access to rural development, Mr Hind said that in the UK, it had focused heavily on agri-environment schemes.

He commented that recent uptake on diversification schemes had been low due to the current economic climate and the difficulty in securing finance from banks.

Mr Hind said that rural development programmes that encourage competitiveness are oversubscribed and more investment is needed in this area. He said these types of schemes would also aid the environment, as increased efficiency and less use of resources would be more environmentally friendly.

"Abolishment of the CAP would lead to competitive distortion across Europe."

CAP Objectives

The current CAP objectives have been reinforced by the Lisbon Treaty. Boosting productivity is particularly important for the future along with providing an affordable and abundant supply, says Mr Hind.

Confronting the situation regarding the dairy crisis, and the success of the CAP in stabilising markets, Mr Hind says that there is only so much that EU policy can do to prevent market volatility.

Recognising this, that is why the current policy focuses so much on stabilising farm incomes, a policy that is fully supported by the NFU, says Mr Hind.

How Common is the CAP?

"It's not common. It would be unrealistic to aim for that as the EU can't manage markets and support. On top of that, member states want to do things differently to reflect the various farming structures and support them in different ways.

"What is important is that there is a common legal framework in place which sets out what states can and can't do. Although I agree that sometimes the parameters are unreasonable, for example the NFU believe there is too much leeway with regard to coupled support in some member states, flexibility is needed," says Mr Hind.

Post-2013, Mr Hind says the CAP budget could potentially decrease due to pressure from the European Commission (EC) and new member states, this would force many countries to re-think and change the way they do things. On top of this there is a growing view that the historic basis for decoupled payment is no longer valid.

"There is the potential that it will become a more level playing field post 2013 providing that their is a common policy and common funding, which would leave member states limited scope to play around with mechanisms.

"However, our greatest fear is that of repatriation. If there is major pressure on the CAP budget, there may be a possibility that member states could provide additional financial support for farmers which would effectively lead to renationalisation of agricultural policy and exasperate competition."

"The CAP represents 42 per cent of the European budget, however with the current economic situation and additional input of the European Parliament, this is likely to decrease."

Lisbon Treaty and the Budget

On average the CAP budget is €55 billion a year. With the dairy crisis seen last summer, it is likely the 2009 budget will exceed that, says Mr Hind.

This €55 billion represents 42 per cent of the European budget. To put this into some context, Mr Hind said that in the 1980's CAP represented over 75 per cent of the European Union (EU) budget. Despite this dramatic fall, it is still Europe's single biggest policy area.

With the current monetary and fiscal crisis, it is expected that a number of countries will be seeking to scale back the size of the total EU budget, which will likely affect the CAP budget, says Mr Hind. On top of this more of the budget will be allocated to new member states, and the older members are likely to see their budget drop.

"The UK is viewed as a marginal member state geographically but also politically, as we do not fully engage with Europe and are also seen as anti-European and anti-CAP, which does us a lot of disservice."

Mr Hind says that the adoption of the Lisbon Treaty will affect farmers in two ways.

Firstly, it will take a significantly longer time period for anything to be decided. This is due to the fact that the European Parliament has more power and a bigger say in policy decisions. Proposals will need to come out next year which is why the debate has started now.

Second, because the Parliament has more power, agricultural interests will be overlaid with other policy interests and so it is going to be difficult to justify the current CAP budget.

"It is going to be difficult to negotiate the CAP, the EC 2020 strategy released at the end of 2009 mentioned agriculture once and put a lot more focus on renewable energy and climate change. The challenge for the CAP is too link into that strategy."

"Science must be embraced to ensure that as production increases, its impact on the climate and land are minimised."

Climate Change and Food Security

"It is difficult to say what more the CAP could do to help farmers combat climate change," said Mr Hind. "The decoupling of support means there is no link between subsidy and production so farmers are no longer offered incentives to intensify production. Whilst intensive farming is not always bad for the environment, farmers have become more aware of environmental practices and cross compliance has helped this."

Under the second pillar, there are policies in place to encourage renewables. In the UK this has been successful, however, Mr Hind questions whether it has enough resources and if it is running efficiently, suggesting that more time and money could be invested into the scheme.

The focus on food security and climate change is one of conflicting interests. On one hand, the industry is been told to up production but on the other hand, there are reports that livestock production must be reduced to combat climate change. Asked whether he thought a policy may come into place which draws food policy and climate change together, Mr Hind says this would not be done through the CAP.

"Whilst policy can play a role in providing incentives to do the right things, knowledge is needed. Sustainable output needs to increase and this can be done through encouraging competitiveness with the CAP. However science, investment, research and development are needed to generate crop varieties, improve yields and feed conversion efficiency so that whilst production increases the impact of this increase is reduced."

Mr Hind felt that this was unlikely to come from the UK due to significant investment needed. He said, however, that the EU would be better placed to coordinate research and development.

Mentioning the US briefly, Mr Hind said that farmers in Europe are often excluded from accessing research from over there such as biotechnology due to EU politics. He suggested that Europe should be more open to science.

Health Check

Describing the CAP health check as a bit of a damp squib, Mr Hind said that the NFU is pleased that compulsory modulation increased to 10 per cent across all countries, as this reduced the distortion in funding which has been deducted from direct payments.

He added that he viewed modulation as an unsustainable method of funding rural development in the future, and the NFU are keen to see it ended.

"Currently modulation is effectively a tax on direct payment, and is not particularly efficient. A big part of the debate post 2013 is how will rural development be funded. I would expect a more permanent, budgetary deal to be decided."

Mr Hind expressed concern at the expansion of Article 68 in the CAP health check, which allowed member states to retain up to 10 per cent of their national ceilings for direct payments to provide support to specific sectors, for an expanded range of purposes. Whilst he understands that there is the need for some pragmatic solutions for some member states to do things differently, he felt this was pushed to the limit.

"Processors and retailers are the market, they must determine a fair price to guarantee supply."

Processors and Supermarkets

Mr Hind feels that processors and retailers in the arable and horticultural industry are increasingly aware of the challenges which producers face. However, he believes that there is a lot of naivety in the livestock industry and refusal to take responsibility for market management.

Whilst retailers are improving, they have not grasped the way in the which they should procure food. He says the way which food is bought and sold must become more long term to take some competition out of the markets.

"Retailers are only interested in the short term profit and loss rather than the long term sustainability of supply chains," says Mr Hind. "This must change.

"Regrettably, I often hear views from processors that farmers need more support to guarantee supply. However, the reality is that if you want to guarantee supply you pay farmers a fair price.

"It is too often heard from retailers and processors that the 'market' decides the prices, but they are the market – so they decide the prices.

"Whilst the ombudsman will go so far in stopping this, it has to have investigative powers so it doesn't just respond to allegations but actually goes in and scrutinises what is happening."

Young Farmers and New Entrants to the Industry

The CAP can sometimes act as a barrier to young people from entering the industry. Whilst support is linked to land, land prices will continue to increase, thus reducing the availability of land on the market, says Mr Hind.

Long term profitability should draw young people into agriculture, he continued. However there may be the possibility of incorporating support for new entrants into the rural development programme with loan support.

Dacion Ciolos, new EU Agricultural Commissioner

New Commissioner

Giving a brief insight into the new agricultural commissioner, Dacion Ciolos from Romania, Mr Hind said that he has given the impression that he has a wealth of knowledge regarding agriculture and the CAP. Whilst he will surely push quite strongly for changing the way in which CAP is allocated, Mr Hind says that Mr Ciolos wants to be seen as a European commissioner, not a representative of Romania.

"He has a big job ahead of him, not only must he manage the interests of various member states, he must also deal with the effects of the Lisbon Treaty whilst trying to get the best budget deal."

He has not suggested any radical departure from the old policy that Mariann Fischer-Boel fought for, however if anything he is keen to focus more on agricultural rather than environmental payments, Mr Hind said.

What's Next?

The NFU is putting together a policy which will be published in the Spring. It is expected that the European Commission will produce a communication outlining future policy – towards the end of the year, which is why activity is ramping up now so as to influence the document.

Mr Hind says that legal documents are expected to emerge in 2011, with final decisions made by the end of 2012, however in reality it probably won't be complete by then.

Concluding the interview, Mr Hind said it is important to remember that no producers wants to be subsidised. But the reality is that they can't survive without it. If the CAP encourages competitiveness then farmers will ultimately be able to exit the system of support.

February 2010
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