FarmPolicy

August 17, 2019

EU CAP “Health Check”

Categories: EU

Background

Recall that back in 2003-04, the European Union (EU) implemented significant reforms with respect to their Common Agricultural Policy (CAP).

In August of 2004, the U.S. Department of Agriculture’s Economic Research Service (ERS) published a report that outlined some of the specific CAP reforms that were adopted.

In a general overview, David Kelch and Mary Anne Normile, the authors of the ERS report, stated that, “In 2003-04, the European Union (EU) introduced direct payments to EU farmers based solely on historical payments. The direct payments, to be implemented in 2005-07 at the discretion of its member states, greatly enhance ongoing reforms of the EU’s Common Agricultural Policy (CAP). Such payments, by being up to 100 percent decoupled from current production, allow farmers to make production decisions based more on market signals than on policy interventions.”

The ERS report also stated that, “The move from payments linked entirely to production to direct payments that are at least partially decoupled from a farmer’s decision to produce is the most important component of the recent reforms.”

Later, the ERS report pointed out that, “An important element of the reform is to make producers more responsive to consumer and environmental concerns. In order to receive the [Single Farm Payment] SFP, farmers must comply with food safety and food quality assurances, animal health and welfare standards, and environmental standards, and they must maintain their land in good agricultural condition. ‘Good agricultural condition’ is generally interpreted to mean that the land will not be abandoned and environmental problems such as erosion will be avoided.”

(In many respects, some of these EU reforms were similar in theme to the direction the United States took on domestic farm policy when Congress passed the 1996 Farm Bill. However, some of these concepts were abandoned when the 2002 Farm Bill was passed.)

As Jack Thurston of FarmSubsidy.org explained to me back in May, a midterm policy review of some of these EU CAP reforms has been scheduled for 2008. Dubbed the CAP “health check” by EU Agriculture Commissioner Mariann Fischer Boel, the review process consists of the following general procedural steps:

The EU Commission will make specific proposals regarding the CAP, which will then be discussed by the Council of Ministers (all of the Agriculture Ministers from the EU Member States); simultaneously, the EU Parliament will also provide input. As Jack explained it to me, these three institutions then represent something of a triumvirate of power in Brussels, with the Commission making the specific proposals, the Parliament being consulted, with the Council making the final executive decisions. The Commission would ultimately implement any policy changes.

EU Commission Proposal on the “Health Check”

With this very general overarching background in mind, Reuters writer Jeremy Smith reported on Monday that the EU Commission was set to release their CAP “health check” proposals on Tuesday.

As a prelude to the formal release, Mr. Smith reported that, “Europe’s agriculture chief will target subsidies paid to large farms and ask the uncomfortable question whether ‘old-style’ support is past its ‘sell-by’ date, as part of a plan to upgrade the EU farm subsidy scheme.

“In a blueprint due to be published on Tuesday, EU Agriculture Commissioner Mariann Fischer Boel will recommend a shopping list of changes to the Common Agricultural Policy (CAP) — some of which are technical, others seen as highly reformist.

“It contains suggestions for limiting the EU’s safety-net intervention storage system for cereals, apart from wheat, and making EU countries hike the amount of direct farm cash received from Brussels that they divert now into countryside projects.

“In numerous speeches and news conferences, Fischer Boel has gone out of her way to stress that what she calls a ‘health check’ is not reform by the back door since her ideas only push existing CAP reform philosophy a little further.”

The article stated that, “‘This (health check) should be limited to seeing whether the 2003 reform is working properly or not. But it’s also important that it (farm policy) is simplified as much as possible,’ one official at an EU national farming organisation said.

“‘This looks like a first step to something much more radical coming in 2013,’ the official said.”

On Tuesday, the EU released their formal CAP proposals, entitled, “Communication From the Commission to the Council and the European Parliament- Preparing for the “Health Check” of the CAP reform.”

A brief, easy to read three-page summary of the formal document is available here.

A press release issued on Tuesday by the European Commission stated that, “The European Commission today unveiled its blueprint for streamlining and further modernising the European Union’s Common Agricultural Policy. The so-called ‘Health Check’ of the CAP will build on the approach which began with the 2003 reforms, improve the way the policy operates based on the experience gathered since 2003 and make it fit for the new challenges and opportunities in an EU of 27 Member States in 2007. The reforms have modernised the CAP, but the Health Check represents a perfect opportunity to take the policy review further. It will ask three main questions: how to make the direct aid system more effective and simpler; how to make market support instruments, originally conceived for a Community of Six, relevant in the world we live in now; and how to confront new challenges, from climate change, to biofuels, water management and the protection of biodiversity. Today’s Communication is designed to kick off a wide-ranging six-month consultation. Next spring, the Commission will return with legislative proposals, which it hopes will be adopted by agriculture ministers by the end of 2008 and could come into effect immediately. During 2007 and 2008 the Commission will develop its approach to the budgetary review 2008/2009. The Health Check constitutes a preparatory action within this framework, without prejudging the outcome of this review. It fine-tunes the 2003 reforms and contributes to the discussion on future priorities in the field of agriculture.”

To watch a video of the press conference in which Commissioner Fischer Boel outlines some of the details of the Commission’s “health check” proposals, just click here.

To view a “Q & A” Memo from Tuesday regarding more specifics of the “health check,” just click here.

In part, the Memo indicated that, “What are the potential implications of further decoupling?

“Decoupling leaves producers at least as well of as before, and most likely better off as a result of production flexibility, market orientation and major simplification. However, it is true that adjustments in production may represent a challenge for the agri-food chain. Strengthened Rural Development measures can be important in ensuring that production can meet industry demand in those areas most affected by decoupling where agriculture plays a positive role on the environment.”

And with respect to payment limitations, the Memo noted that, “Why are we proposing upper limits for payments?

“Calls for transparency on recipients of CAP payments are linked to the apparent imbalance which still exists in the distribution of direct support per beneficiary. The shift towards decoupled support makes this distribution more evident and puts pressure on the justification of payments – are they destined to the appropriate recipients? In this context the capping of payments, an old idea which was dropped in the past, has resurfaced.

“Will capping alter the uneven distribution of payments?

“In the EU-27, about 20% of beneficiaries receive around 80% of direct payments. This distribution is linked to farm size distribution in each Member State, farming intensity and which farming sectors formerly received production linked direct payments. Exactly for these reasons, only at low thresholds would capping change the distribution of payments per beneficiary. At such a low level, however, the measure also has a significant income impact on many beneficiaries.”

In press coverage of the “health check” developments, Lucia Kubosova reported today at the EU Observer Online that, “‘It’s quite normal for perfectly healthy people to see their doctor,’ EU agriculture commissioner Mariann Fischer Boel stated in her presentation of the ‘health check’ of the EU’s common agriculture policy (CAP) on Tuesday (20 November).

“She added that while such a check-up does not necessarily mean ‘the patient is sick’, the changes she proposed in the way the EU spends about 40 percent of its money ‘will make a real difference for farmers, consumers and taxpayers.’”

The article added that, “The idea of capping and cutting payments for farmers, particularly the current biggest beneficiaries, and shifting the extra money to rural development is likely to spark the most controversy.

“The commission envisages ‘gradually reducing the support level as overall payments to big farmers increase, starting from the level of, for example, €100,000 per year.’ Mrs Fischer Boel argued the move would mean ‘that you never cut completely everything, but the more you get the more the higher the percentage of the cut could be.’

“The decision would mainly affect countries like Germany, the UK, Spain or Denmark but also several of the ‘new’ EU countries in central Europe.”

Andrew Bounds reported in today’s Financial Times that, “The Queen of England made common cause with former communist collective farmworkers and other big landowners yesterday to fight cuts to subsidies proposed by Brussels. The UK and Germany attacked plans from the European Commission to slash aid to the biggest farms, saying they were unworkable and undesirable.

“‘There is no clear link between wealth and the size of a farm,’ said a UK spokeswoman. ‘Many large farms are co-operatives set up to enable small farmers to benefit from economies of scale and, equally, large farms may offer greater environmental benefits than smaller ones.’ She added that owners of large holdings would simply break them up to avoid the measures.

“‘This idea of capping payments according to size is something we do not like,’ a German government spokesman said.”

The FT article added that, “Mariann Fischer Boel, the European Union farm commissioner, had attempted to slay one of the CAP’s many demons – that the rich get most – by proposing less money for the biggest farms from next year. ‘We are raising this issue partly because the public raises it again and again,’ she said of the €45bn ($67bn, £32bn) a year policy.

“About 80 per cent of the money goes to a fifth of the EU’s 7m farmers.”

The Associated Press reported yesterday that, “The European Commission presented plans Tuesday to reform the EU’s agriculture subsidy program, seeking to better control multibillion euro (dollar) handouts to farmers and introduce environmentally friendly policies.

“As part of a review of the program, the E.U.’s executive arm proposed to reduce subsidies for large farms and use the money saved for smaller-scale rural development.”

The AP article added that, “The plan, to be discussed over the coming six months by E.U. farm ministers, farmers and others involved in the subsidy program, suggests a gradual increase in quotas on the production of milk before they are lifted in 2015 to meet increased demand.

“To meet a growing demand for crops that can be turned into biofuels, the proposal says the E.U. should consider letting farmers plant cereals on all of their land, instead of leaving some of it fallow to avoid overproduction.”

Bruno Waterfield writing today at The Telegraph Online, stated that, “Plans by Brussels to cut European Union farm subsidies worth £56 million to Britain’s wealthiest and largest landowners, including the Queen, will benefit ‘lawyers and accountants’ not taxpayers, officials have said.

“Under the EU’s Common Agriculture Policy (CAP) some of Britain’s richest people and largest landowners pocket large sums of money to subsidise farms on their estates.

“Britain will oppose the cuts because the Government fears that farmers or landowners seeking to minimise the cuts to subsidies will find ways to break up ownership of large farms, leading to a decline in agricultural productivity and a bonanza for lawyers.

“‘The subsidy cap will not bite and economies of scale for big farms could be lost while lawyers and accountants end up receiving CAP money,’ said a British official.”

And David Charter writing today at The Times Online explained that, “The Commission said that it wanted to cut money going to huge farms, since they did not face the same pressures as smaller family ones. British farmers stand to receive €78.5 million (£56 million) less while Germany’s collectivised farms would be the biggest losers, with a cut of €270 million.

“Farmers receiving between €100,000 and €200,000 face a 10 per cent cut; those receiving between €200,000 and €300,000 a 25 per cent cut. Those receiving more than €300,000 could expect a 45 per cent cut.

“Mrs Fischer Boel said she was aware that big farms could simply seek to split up to avoid cuts in subsidy. ‘If everybody that hits a ceiling makes that calculation, then of course we will have to take stock of that because then the only winners will be the lawyers,’ she said.”

“The plan also proposes to increase the amount of land a farmer has to own before qualifying for EU aid, from the current 0.3 hectares, to ensure that only genuine farmers receive subsidies. Mrs Fisher Boel said: ‘It has caused problems in some member states to handle so many applications. If you have a goat in your backyard you are not a farmer, so let’s get those pseudo-farmers out of the business and concentrate on real agriculture.’”

To view a television report documenting some of these issues from the BBC, just click here. Jack Thurston of FarmSubsidy.org is featured in the clip.

As the U.S. continues to step slowly towards a resolution of the 2007 Farm Bill, it is interesting to see that EU policy makers are facing similar issues in their domestic debate about agricultural policy. As the debates unfold, observers will watch to see if the U.S. and EU move in similar or different directions on some of these issues.

Keith Good

Comments are closed.