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CAP Reform and entrepreneurial opportunities

in the enlarged EU27th – 28th May 2004Hilborough, Norfolk

The newly decoupled CAP and English Land

Management

Allan BuckwellCLA Chief Economist and Head of Research

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The newly decoupled CAP and English Land

Management• The evolution of the CAP, UK view.• Decoupling and the English SFP• Challenges and impacts of

decoupling• The Second Pillar: Rural

Development• The future of the two pillars of the

CAP

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A few basic statistics

Popn m UAA m Ha UAA/cap Ha GDP/capUK 59.6 15.7 0.26 22,800Czech Rep 10.3 4.3 0.42 13,800Malta 6,400EU-27 481.9 264 0.55 19,000

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Agriculture in the UK economy 2002p

Gross value added £m 7,117% of GDP % 0.8Workforce '000 550% of national workforce % 1.9Gross Fixed Capital Formation £m 2,318% of national GFCF % 1.6Imports of Food, Feed, Drink £m 18,905Exports of Food, Feed, Drink £m 8,950Self sufficiency % 62Self sufficiency indigenous food % 75Household food consumption £b 141% of final consumer expenditure % 21.2of which: Household food % 9.5 Food eaten out % 5.8 Alcololic drinks % 5.9

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The evolution of the CAP, UK view.

• Traditional 19th C approach was free trade.

• After 2 WWs in 20th C, 1947 Ag Act – ‘produce that part of the nation’s food in our economic interest to produce’.

• Price support by producer deficiency payments

• Joined EEC in 1973 on third application.

• Expansion of UK agriculture, raised self supply.

• Non-farmers very critical of CAP: consumer, environmental and trade (3rd world) costs.

• Very strong environmental movement

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UK position on EU and CAP • UK political parties cannot make-up their minds on

Europe; both parties have reversed their positions

• Opt-outs of social chapter and Euro, red lines on Constitution.

• Governments pro-reform on CAP, pro trade liberalisation

• Net contributor to budget, hence British Budget rebate (political weight much greater than economic)

• Small use of structural funds; small beneficiary of Pillar 2

• Favour reductions in market support, moves away from supply management.

• Supports shift Pillar 1 market support to Pillar 2 Rural Dev.

• But wants a fairer, more objective sharing of Pillar 2

• Favoured enlargements, supports further enlargement – wider Europe of freely trading nation states.

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Decoupling and the English SFP

• Support for decoupling in principle: for trade, market orientation and environmental reasons

• Broad acceptance that farmers deliver multi-functional benefits

• Acceptance of SFP as correct further move towards paying farmers for ‘looking after the countryside’

• Strong English debate on how to allocate the SFP• Decided for a hybrid scheme which gives the

payments mostly on Historic basis in 2005, and Regional average payment by 2012.

• Some strong landlord tenant issues given 1/3rd land is leased and also the prevalence of short

term leasing arrangements.

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Controversial aspects of decoupling

• National Reserve: to right injustices of the Reference period (2000-2002)

• Treatment of new entrants• Entitlement trading, the concern• End of tenancy problem• Siphons on entitlement trading• The 10-month ‘land at the farmers’ disposal’ rule

and short term contracts• Cross compliance conditions

– Statutory Management Requirements– Good Agricultural and Environmental

Conditions– Retention of 2002 permanent pasture

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The impacts of decoupling• Many expect production to fall• and therefore incomes to rise

– Elimination of unprofitable production– Rise in prices (?)

• Environmental benefits• Main EU support reclassified as Green Box

(from blue) and therefore safe, Is it?• Justifications for the SFP?

– Income support, and income stabilisation– Preserving farming where it would otherwise

disappear– Delivering public environmental services– Compensation for higher enviro costs

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Pillar 2: Rural Development Policy

• Rural Development Regulation (1257/99)– Co-financed – regionally defined– Menu-driven, programming approach– multi-annual

• The measures available– Competitiveness: training, investments, e

retirement and new entrants– Environment: LFAs, Agri-enviro, N2K– Wider rural development: diversification,

quality of rural life– Plus LEADER

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Future development of the CAP?

• Funds for Pillar 2?– Compulsory modulation 5% (2007)– Leaves balance Pillar 1:Pillar 2 at 80:20

• Financial perspectives 2007-2013– Based on 1.24% of GNI (contested)– 1 Sustainable Growth

• Lisbon: competitiveness & cohesion 47%

– 2 Preservation and management of natural resources• Göteborg: sustainable development 39%• Agriculture markets and SFP 29%• Rural development and other 10%

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Concluding remarks• The CAP is a continually evolving, complex

set of arrangements for rural policy• The drivers are:

– The budget: amount and structure– External – trade – forces, especially WTO– Domestic pressures: massive

detachment from food production; highly precautionary approach; food safety, environment and animal welfare.

• Is Europe going forward or about to stall?• The new member states can have an

important influence

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Allan BuckwellCLA Chief Economist and Head of Research

Tel 020 7460 7937Allan.buckwell@cla.org.uk

www.cla.org.uk