FarmPolicy

April 18, 2014

Crop Insurance; Climate Change; Biofuels; CFTC Issue; Peanuts; and a CAP Update

Crop Insurance- Detailed Audio Backgrounder

Yesterday, I had the opportunity to speak with former USDA Chief Economist Keith Collins and Bob Parkerson, the president of National Crop Insurance Services about the federal crop insurance program.

We discussed a wide variety of issues associated with crop insurance. Specifically, yesterday’s conversation touched on budgetary issues and federal funding for crop insurance; the interaction of crop insurance with the new Average Crop Revenue Election program (ACRE) and Supplemental Revenue Assistance Payments program (SURE); the potential role of crop insurance in the future development of U.S. farm policy; and general issues which are unique to crop insurance which makes it distinct from other forms of federal agricultural support.

An audio replay of our conversation can be heard by clicking here (MP3- 30 minutes).

(Note also that FarmPolicy.com podcasts are also available via RSS feed at this address, feed://farmpolicy.typepad.com/farmpolicy/rss.xml).

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“Analysis from Brussels”- by Roger Waite- France Embraces CAP Reform

France Embraces CAP Reform

By Roger WaiteRoger is editor of AGRA FACTS, the Brussels-based newsletter on EU agriculture policy, and is a Journalism Fellow at the German Marshall Fund of the United States. “Analysis from Brussels” is posted exclusively at FarmPolicy.com.

While the CAP Health Check from last November will not go down in history as the biggest step in the process of reforming Europe’s Common Agricultural Policy (CAP), it may yet prove to be highly significant in that it has given France the chance to embrace the reform process. Indeed, the noises coming from French government circles in recent weeks have signalled a potentially decisive shift, which, based on past experience, will move the centre of gravity of the political majority within the EU. Paris has seen the writing on the wall (and the pressures to cut the CAP budget after 2013) – with French Farm Minister Michel Barnier and Prime Minister Francois Fallon claiming that France is in danger of being isolated unless it embraces reform now- and concluded that French cereal farmers get too much from the CAP, especially relative to French livestock producers.

Just to recap, back in November, the EU finalised the “Health Check”, which included three main elements in the way that Member States manage their CAP direct aids – i) committing to a further decoupling of EU direct support between now and 2013; ii) allowing Member States flexibility to redistribute up to 10% of their current direct aid “national envelope” (defined under “Article 68”) for various purposes (some of which may be non “Green Box in WTO terms), and iii) shifting a further 5% of funds away from direct aid [through “compulsory modulation”] towards Rural Development measures to address certain “New Challenges” defined as climate change, renewables, water scarcity, biodiversity loss, innovation and dairy restructuring. The Health Check also encouraged Member States to move away from a historical base for allocating payments on the grounds that this was less relevant as time goes on – but there was no obligation linked to this. As with the 2003/2004 “Fischler” reforms, the agreement leaves Member States more or less with the same envelope of funding, but has adjusted the menu of options for how to pay out this amount. It remains up to the Member States to decide how to administer its direct support, thereby highlighting the domestic national political priorities – and tensions. And this is what we are now seeing in France.

To put things more clearly in context, I should perhaps also add that it has become clearer than ever in recent months that the CAP is facing a radical reform for the period after 2013 – because of the need to define the new EU budget for the next 5-7-year period starting in 2014. In short, the implementation of the Health Check will be the last chance for Member States to organise their defence for the biggest ever reform battle ahead – where Farm Ministers might well be joined around the table by Finance Ministers and Heads of Government.

Following the Health Check, Member States have until the Summer to decide how they want to change the administration of their direct support, or Single Farm Payment (SFP) as it is now known – with the first changes applicable next year. For countries such as Germany or England [but not Scotland & Wales], which decided after the 2003 reforms to change their SFP system over a long transition period towards a flat-rate payment per hectare with very little “coupling” maintained, there will be few changes necessary. By contrast, those Member States that took a more conservative approach to implementing the Fischler reforms now have more to do. And to be clear, France was the Member State which maintained as many “coupled” payments as possible. To recap – following the Fischler reform, France still “couples” its payments for suckler cows (100%), calf slaughter premium (100%), sheep & goats (50%), adult cattle slaughter premium (40%), arable/cereals producers (25%) – and bases all remaining payments on a “historical model” (i.e. the amounts received in direct aid from 2000-2002.)

So, what is France going to do?
In a nutshell, Paris intends to address existing national disparities and redistribute €1.4bn of its overall l€8bn envelope of EU aid, i.e. 18% of the total, in what Minister Barnier has described as “a bid to maintain France’s grassland-based livestock production potential”. The first change is that the arable payments, the adult & calf slaughter payments, and the sheep & goat payments will be fully decoupled – and the suckler cow payment will be 25% decoupled, i.e. will stay 75% “coupled”. But rather than pass these previously coupled amounts back to the “usual” recipient as newly decoupled aid on a historical basis, Barnier is invoking a special clause which he himself negotiated into the Health Check political agreement (now defined as Article 63), which allows the Member State to rechannel this previously “coupled” funding. So, some €640m of previously coupled arable payments plus €130m previously coupled livestock aid will now be used to fund a new hectarage payment for grassland farming & forage crops (varying according to stocking density, but with a maximum of 0.8 livestock units per hectare). As you will note, this entails a significant shift from corn to horn.

In addition to this, Paris is seeking to use the above-mentioned Article 68 and the funds generated from compulsory modulation – some of which is supplemented by national funding – to further underline this shift of emphasis. Under Article 68, specific coupled payments will be “(re-)introduced for sheep & goats (worth €135m), mountainous milk production (€0.02 per litre –up to a total of €45m), durum wheat in traditional areas (€8m) and suckler calves (€5m), as well as payment for vegetable proteins (30m) and protein crops (€40m). Another new idea, agreed under the Health Check, is the use of €100m to provide start up help for a new risk management crop insurance system, plus €40m for a disease fund.

Then there are also changes to France’s Rural Development programme, financed by an increase the rate of modulation from the current 5% of direct aid payments per farm [excluding the first €5 000] to 10% by 2013. This will see an additional €240m going into the existing agri-environment grassland premium (€64m of which comes from national funds), €42m for less favoured area payments (€19m from national funds), and €32m into the New Challenges (€14m from national funds).

According to French government figures, French cereals farmers’ average income last year was double the average cattle farmer revenue – and four times greater than the average French sheep & goat farmer. Because the original calculation of the direct aids was based on regional reference yields (in the 1980s!), the highest rate of aid per hectare goes to the most productive farmland. By definition this tends to be the richest farmers who least need the support. A study by the French National Institute for Agricultural Research INRA has indicated that the plan will result in a “significant redistribution” of aid, which clearly favours grassland farms at the expense of grain farms. It estimates that direct aid to French cereal farmers will drop by €5 900 on average – equivalent to a 17% cut (based on 2003-2007 figures). By contrast, the change is likely to mean an average €7 800 increase in support for sheep farmers, equivalent to a 43% increase from the 5-year average – or a 29% increase from 2007 levels. Not surprisingly, French cereals farmers have been out on the streets. Curiously, few of them appear to be defending the status quo, merely criticising the speed and amount of the shift.

So, if France is now in effect admitting that grain farmers in the Paris Basin are being over-generously rewarded by the CAP, will the French government embrace a similar re-balancing at EU level? Yes, quite conceivably, but only on the condition that France maintains its overall €8bn envelope! After all, France should now be rewarded for making its payments more justifiable.

All eyes now turn to countries such as Spain and Italy, to see how they will choose to implement the Health Check.

By Roger Waite