Economics and Politics of the CAP after 2020

XV EAAE Congress

TOWA R D S S U S TA I N A B L E AG R I - F O O D SYS T E M S :B A L A N C I N G B E T W E E N M A R K E T S A N D S O C I E T Y

XV EAAE Congress | August 29th – September 1st 2017

Reflections on the CAP post 2020 Contribution to Organised SessionThe Economics and Politics of the CAP after 2020XV EAAE Congress, Parma, Italy28 August- 1 Sept 2017

Alan MatthewsProfessor Emeritus of European Agricultural [email protected]

XV EAAE Congress XV EAAE Congress CAP reform

Positive or normative approach?

• What should be in the CAP after 2020?

(already discussed in RISE Foundation report)

versus

• What are the factors likely to influence the CAP 2020 debate?

(basis for this presentation)

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Where are we now?

• Oct 2016 Commission 2017 work programme launched initiative on modernising and simplifying the CAP

• Feb 2017 Commission Inception Impact Assessment

• Feb-May 2017 Public consultation

• July 2017 ‘CAP – Have Your Say’ public conference

• Impact assessment by DG AGRI services

• End 2017 Commission Communication

• First half 2018 Commission legislative proposal?

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Simplifying and modernising the CAP – why?

• The Commission’s proposal on the next MFF• Due end 2017, may be delayed

• Dissatisfaction with outcome of the 2013 reform• Complexity• Greening

• New challenges• Paris Agreement (climate action)• SDGs• Competitiveness and innovation• Market volatility/risk management• “Societal concerns”

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Parallel processes

• Omnibus Regulation on financial simplification (Sept 2016)• Commission – more flexibility for MS re active farmers, allow ‘decoupling’ of VCS

during market crises, remove hectares limit on young farmers aid and require business plan, introduction of sector-specific income stabilisation tool

• Council – largely focused on simplifying rules, national assistance for producer groups in regions with below average coverage

• Parliament – requirements for EFAs, risk management tools (subsidised premiums for income insurance, lower threshold for indemnities from 30% to 20% of losses while increasing threshold for public subsidy from 65% to 70%, voluntary supply management), food chain issues (strengthened powers for producer groups) , extension of RDPs

• Initiative to improve the food supply chain (July 2017)• Public consultation opened• Outcome on whether to present legislative or non-legislative proposals Spring 2018

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Results of public consultation

• Having asked participants to state the most important challenges for EU agriculture and rural areas, they were asked:

• Majority of respondents in each of three groups (individuals in farming, non-farmers and organisations/companies) replied

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XV EAAE Congress CAP reform7



Commission impact assessment scenarios

• 1. Maintaining the EU’s farm rules as they currently stand

• 2. No policy, full liberalisation

• 3. Programming with implied shift from area-based payments towards rural development, innovation & risk management tools

• 4. Build on area-based payments to further leverage economic & environmental benefits in a simplified way

• 5. Strong redistribution of support inc. capping, focus on small-holders, environmentally-friendly farms & local food

• Source: Own interpretation based on Commission, Inception Impact Assessment for a Communication on Modernisingand Simplifying the Common Agricultural Policy, Feb 2017

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Source: Matthews, A., capreform.eu

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Trends in EU-28 farm income aggregates 2005-2016

Factor income Entreprenurial income Fac.Inc. average 2005-16

Ent. Inc. average 2005-2016 Subsidies on production Subsidies on products


Prospects for the CAP budget

• The actual context• New EU priorities

• Brexit

• The Brussels rumour mill• Commission Reflections Paper on Future of EU Finances

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Commission Reflections Paper

• Options under heading ‘Reforming the Common Agricultural Policy’• Focus further on the provision of public goods

• Target direct payments more effectively by reducing payments for largest farms

• Introduce “a degree of national co-financing” for direct payments

• Risk management tools to deal with crises

• Rationalise action of different structural funds in rural areas, eliminate overlaps

• Put more emphasis on incentivising farmers to deliver environment and climate public goods through contracts

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Commission Reflections Paper – 5 ‘illustrative scenarios’

No. Scenario EU budget CAP share Agricultural policy priorities

1 Carrying on Stable Lower Better targeting of support on farmers with special needs and risk management, investment in RD (especially agri-environment)

2 Doing less together

Smaller Lower Support only for farmers with special needs and risk management tools

3 Some do more Stable+ Lower As in Scenario 1

4 Radical redesign

Smaller Lower As in Scenario 1

5 Doing much more together

Increased Higher amount Not specified

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Prospects for the CAP budget• The actual context

• New EU priorities• Brexit

• The Brussels rumour mill• Commission Reflections Paper on Future of EU Finances• Statements by net contributor countries• Statements by Budget and Agriculture Commissioners

• Assuming a smaller CAP budget, where should the cuts fall?• Pillar 1 or Pillar 2?

• Member State distribution• Further movement towards external convergence?• Even greater flexibility to shift funds between Pillars, assuming Pillars continue?• Prospects for a performance reserve?

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Relative importance of direct payments and rural development funding by Member State, 2015-2020

Pillar 1 Pillar 2Source: Own calculations based on DG AGRI dataNote: Figures prior to transfers between Pillars


Political and scheduling constraints• Can co-legislators agree within 12 months of Commission publishing

legislative proposals?• Will European Parliament agree to draft its opinion before it knows the

outcome of MFF negotiations?• Will European Council attempt to red-line particular CAP issues which are

the prerogative of co-decision as on last occasion?• How will elections in key Member States in 2017-18 affect AGRIFISH

Council perspectives?• If no agreement by March 2019, given need for lead-in time for paying

agencies to adjust systems, will there be a ‘CAP-light’ reform with slight tweaks with major reform postponed to early 2020s?

• What might be impact of a radically different agricultural policy taking shape in the UK post 2020 on future CAP design?

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Which direction for CAP after 2020?

Support for products

Support for producers

Preventive supply managementRaise safety-net intervention pricesCounter-cyclical paymentsMore coupled support

InnovationClimate mitigation and adaptationReduced chemical inputs, efficient water use, improved soil health, habitats for biodiversity

CAP reforms 1992-2008

Support for production methods

2013 CAP reform

CAP post 2020??

Return to product-related interventions?

Further emphasis on how food is produced


More detail

• CAP – Thinking of the Box report

• RISE Foundation

• http://www.risefoundation.eu/publications

• capreform.eu

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http://www.risefoundation.eu/publications

Food

Economics and Politics of the CAP after 2020