Memorandum submitted by Centre for Rural
Economy, University of Newcastle upon Tyne (CAP 08)
1. EXECUTIVE
SUMMARY
1.1 We welcome the Government's publication
of a vision for the Common Agricultural Policy (CAP). Over recent
years, the UK Government's approach has lacked consistency, and
a clear vision should help provide direction and purpose through
future reforms.
1.2 There remains a lack of clarity about
the rationale for payments under Pillar 1. They could be seen
as compensation payments, economic adjustment aids, social assistance
payments or public good payments. We agree with the Government's
vision of progressive reform of Pillar 1. However, the document
is unconvincing on the question of how Member States might be
encouraged along a reforming path that effectively dismantles
Pillar 1. The vision needs to be accompanied by a clear strategy
for winning support among the Member States.
1.3 The development of Pillar 2 represents
the best means of establishing a new consensus around a progressive
reform agenda. However, to date, the operation of Pillar 2 has
not been given the priority it warrants. A successful Pillar 2
that enjoys widespread support among Member States is the key
to ensuring progressive reform of Pillar 1.
1.4 The UK Government played a pioneering
role in the recent development of the CAP, especially through
its use of modulation. However, at the European level, the experience
to date with Pillar 2 has failed to live up to the grand vision
projected for it, and this has limited the expectations around
what can be achieved in the future. The challenge is to improve
Pillar 2 such that it becomes an attractive alternative to Pillar
1. Any strategy for achieving this is absent from the Government's
vision.
1.5 The progressive dismantling of Pillar
1 would, in general, be a good thing for the economic development
of the rural areas of the UK. Pillar 1 serves to ossify rural
economies and perpetuates the case for special and separate treatment
of agriculture. However, some rural areas of the UK remain relatively
more dependent on agriculture and tourism than elsewhere and are
locked in a low-wage/low productivity local economy. In these
areas, a rapid dismantling of the CAP, with swift removal of agricultural
support, will require concomitant financial assistance to facilitate
rural economic development.
1.6 The Government's vision for the CAP
needs to be accompanied but a detailed analysis of the means by
which improving the operation of Pillar 2 can secure further reform
of Pillar 1.
2. INTRODUCTION
2.1 We welcome the Government's publication
of a vision for the Common Agricultural Policy (CAP). Since the
early 1990s, CAP reform has been an almost continuous process.
In the past, the UK Government's approach has lacked consistency.
Having a clear and explicit vision should help provide direction
and purpose through future phases of reform. The Government's
vision for agriculture over the next 15 to 20 years is for an
industry which is fundamentally sustainable and an integral part
of the European economy. It should, the document argues, be:
— internationally competitive without
reliance on subsidy or protection;
— rewarded by the market for its outputs,
not least safe and good quality food, and by the taxpayer only
for producing societal benefits that the market cannot deliver;
— environmentally-sensitive, maintaining
and enhancing landscape and wildlife and tackling pollution;
— socially responsive to the needs
of rural communities;
— producing to high levels of animal
health and welfare; and
— non-distorting of international trade
and the world economy.
2.2 We would endorse all elements of this
vision except the fourth one—that the agricultural industry,
and hence agricultural policy, should be socially responsive to
the needs of rural communities. This component of the vision requires
more detailed and careful consideration than is evidenced in the
HMT/Defra vision document. It is currently rather vaguely expressed
and could be argued to be in sharp contradiction to several of
the other components of the vision. We would argue that this component
of the vision should be expressed as "contributing to the
economic development of rural areas."
2.3 We restrict our memorandum to the Committee's
questions about the rationale for Pillar 1 and the implications
of the Government's vision for the rural economy. We also wish
to draw the Committee's attention to the crucial role of Pillar
2 in facilitating Pillar 1 reform.
3. THE RATIONALE
FOR SUPPORT
FOR AGRICULTURE
3.1 We agree with the Government's analysis
of the case for further CAP reform, and especially Pillar 1. The
CAP is expensive to maintain. It sits uneasily within the EU's
Lisbon Strategy for improving the productivity and competitiveness
of firms and sectors in the European economy. It is an inefficient
means of delivering benefits to the very people it is supposed
to be directed at—farmers. It also distorts international
trade and hampers the economic development of poorer countries
of the world.
3.2 Our starting point is a concern for
the social and economic well-being of rural areas and communities
in the UK and the rest of the EU. From this perspective, we would
argue, there has been an over-emphasis on the role of agriculture
in rural development which the CAP has perpetuated, with damaging
consequences in terms of the over-intensification of agriculture
(and resultant damage to the rural environment), economic over-dependence
of rural areas on agriculture and ill-adapted rural economies.
Rural economic development is hampered by the conservative forces
that argue for the maintenance of the status quo with respect
to the CAP. Our vision through a 15 to 20 year transition period
would result in the replacement of Pillar 1, whose primary objective
of boosting farming production and productivity is now defunct,
with Pillar 2 which aims to encourage the conditions for the balanced
territorial development of rural areas.
3.3 The Government rightly questions the
justification for Pillar 1 of the CAP. Since the 1992 CAP reforms,
the rationale for the direct payments to farmers, initially through
individual commodity regimes but latterly through the Single Farm
Payment, has never been clearly articulated. The result has been
confusion about what Pillar 1 is actually for. Different Member
States and interest groups place different emphases on what the
objectives of Pillar 1 might be. We can identify the following
four rationales:[5]
(i) Compensation payments, which compensate
farmers for losses suffered as a result of some policy change.
The assumption here is that individuals had been encouraged to
believe that a particular policy system would continue, and had
made investments on that basis. Ideally, payments should be related
to the losses experienced.
(ii) Economic adjustment aids, where assistance
is given to individuals or groups of individuals to facilitate
the movement of resources into new uses in response to changed
market conditions. In other words, direct compensation payments
are oriented to structural adjustment in the agricultural sector
and in rural areas.
(iii) Social assistance payments, where payments
are made in order to bring about just and equitable treatment
of social welfare provision between workers in agriculture compared
to other industries.
(iv) Public good payments, where spending
is used to support and stimulate the provision of valued public
goods (such as attractive environmental features) that might otherwise
not be produced.
3.4 Under the first two rationales, payments
should be finite and time-limited. Otherwise they threaten to
perpetuate the dependency and distortion that they were intended
to overcome. The rhetoric of past reforms was that the new payments
were compensatory payments. They are not particularly effective
as economic adjustment aids because they do not target the farm
workers and those in the upstream and downstream industries who
bear the brunt of shifts from production to land-oriented payments.
The third rationale may be legitimate in countries where farmers
are not eligible for unemployment or retirement support. However,
this is not the case in the UK. This rationale also raises questions
about the inequitable distribution of existing payments in relation
to need. The fourth rationale remains a long-term justification
for continuing payments rather than production subsidies. It also
recognises farming's role in forming a favourable rural environment.
An important implication, however, is that this is not an entitlement
and must be related to the public goods provided. Arguably, the
other adduced roles of Pillar 1—such as to prevent rural
depopulation, protect valued environmental resources or increase
food security—are not well-founded and could be achieved
more effectively by other means.
3.5 We agree that the key challenge is for
the EU to move towards a position where production support and
the Single Farm Payment have been effectively dismantled. To achieve
the Millennium Development Goals and to comply with WTO rules
it is necessary for developed countries to remove agricultural
supports that are trade distorting and not targeted at the delivery
of social and environmental benefits. All public payments to agriculture
should be transparently targeted at overcoming market failures
and delivering public benefits. However, the Government's vision
is unconvincing on the question of how the Member States might
be encouraged along such a path. Effectively, the European politics
of CAP reform has been gridlocked between liberalising and protectionist
positions. The UK Government flipped between the neo-liberal "scrap
the CAP" position of the 1980s to a progressive vision for
Pillar 2 to replace Pillar 1 (with the introduction of modulation),
but has flipped back again with calls to reduce the whole CAP
budget including that for Pillar 2.
3.6 Our view is that there will remain a
need for a common European policy but this should essentially
be centred on three objectives: avoiding unfair competition between
Members States; managing a common framework for agri-environmental
support; and managing a common framework for support for rural
development. This requires a clear strategy for winning hearts
and minds (and votes) among the Agricultural Ministries and the
Heads of Government of the EU Member States. The development of
Pillar 2 remains, we would argue, the only means of establishing
a new consensus behind a progressive reform agenda.
4. A PILLAR 2
CAP
4.1 The launch of the Rural Development
Regulation (RDR) as part of the Agenda 2000 reforms was seen by
many to herald a new approach towards EU rural and agricultural
policies. Hailed as the new "Second Pillar" of the CAP,
the rhetoric surrounding the Regulation emphasised decentralised,
participative delivery and a territorial and multi-sectoral focus.
The RDR was strongly associated with the rhetoric and principles
that came out of the Cork Conference of 1996. There Commissioner
Fischler talked about the need to move away from a narrow sectoral
focus on the agricultural industry and towards a broader rural
development policy, tailored to local needs and conditions and
drawing in a wide range of partners.
4.2 The RDR brought together a range of
existing CAP agricultural, rural development and environmental
measures into a single regulation, in principle creating the opportunity
for a more coherent and integrated approach. The measures included
support for structural adjustment of the farming sector; support
for farming in Less Favoured Areas; remuneration for agri-environment
activities; aid for investments in processing and marketing; forestry
measures; and aids for "the adaptation and development of
rural areas". In bringing together all these forms of aid
under a single menu, to be delivered via multi-annual programmes
drawn up at "the appropriate geographical level", the
RDR presented for the first time a coherent, alternative operational
model to Pillar 1.
4.3 The UK Government played a pioneering
role in the development of a new approach to the CAP, especially
through its decision to apply the discretionary modulation measures
and redirect a small but growing proportion of payments from Pillar
1 to Pillar 2. In certain crucial respects, however, at the European
level the RDR has failed to live up to the grand vision projected
for it.
4.4 The EU budget for the RDR has been small
in relation to the total CAP and Structural Funds budgets available
to the Member States and, by comparison with what countries had
been receiving for predecessor measures, it represented only a
modest increase in resources. From 1998 to 2000 there was just
a 3% growth in funding for RDR measures in EU-15, with an additional
modest increase of 15% planned by 2006. Moreover, the individual
EU allocations made to Member States under the RDR were based
upon past levels of spending on its various predecessor and constituent
measures. By avoiding any attempt to adopt alternative, more needs-based
criteria, the EU allocations effectively constrained the scope
for the development of new policies and schemes.
4.5 Because the advent of the RDR did not
herald a significant increase in "new money" for agricultural
and rural development, it was often interpreted as offering few
opportunities to even alter the balance of funding between measures,
let alone to enable the development of new policy approaches or
initiatives. Thus it is perhaps unsurprising that officials working
in agriculture Ministries in most Member States were inclined
to continue to operate the same schemes or policies as they had
done before. As a result, in most countries the preparation of
the Rural Development Plans became little more than a "repackaging"
exercise.
4.6 However, our evidence also suggests
that limitations resulting from financial constraints and short
timescales were also compounded by an inherent institutional conservatism
within the national and sub-national structures surrounding the
CAP, which acted against the adoption of a fresh approach to the
Second Pillar. The CAP has always been a strongly hierarchical
policy, prescribed centrally and offering little discretion to
the national and sub-national officials charged with its implementation
(compared, for example, with European environmental or cohesion
policies). These agricultural officials tend, therefore, not to
be used to operating in ways that require initiative and discretion,
to foster innovation from the "bottom up" and to tailor
policy instruments and delivery processes to local needs and opportunities.[6]
4.7 Collectively these issues have created
an operational climate which discourages those responsible for
RDR planning and delivery from seeing themselves as "entrepreneurial
actors" in rural development, promoting new approaches and
forward looking, integrated strategic goals. It is unfortunate
that the weaknesses in the implementation of Pillar 2 in the 2000-06
programming period have limited the expectations around what can
be achieved during the 2007-13 period.
4.8 To improve the prospects for Pillar
2 requires progress on three fronts:
First, there is a need to significantly
grow the resources allocated to Pillar 2 (through shifting resources
from Pillar 1). Without significant planned growth in Pillar 2
two resourcing, the approach is likely to stagnate.
Second, Pillar 2 needs a radical simplification
of its rules to allow much greater flexibility among Member States
in how this instrument is shaped and delivered.
Third, a Pillar 2 CAP will require institutional
reform in delivery structures. (In the English context, Natural
England might provide a useful model).
4.9 Thus, while the longer-term prospects
for progressive CAP reform hinge on the success of developing
the CAP's second pillar, the experience of Pillar 2 to date is
seriously undermining its prospects as a component of the CAP
that can look forward to increasing support among a widening range
of stakeholders. The challenge is to improve and reform Pillar
2 such that it becomes a viable and attractive alternative to
Pillar 1. Any strategy for achieving this is entirely absent from
the UK Government's vision for the future of the CAP.
5. CAP REFORM
AND THE
RURAL ECONOMY
5.1 There is effectively no such thing as
"the rural economy". The term implies a unitary, perhaps
even closed, economy, singular in character. Rather, there is
economic activity in rural areas. Agriculture plays only a small
role in, for example, providing employment in rural areas. In
any case, employment in agriculture is falling while more and
more jobs are being created in other sectors. The Countryside
Agency reports that, between 1998 and 2002, the number of jobs
in agriculture and fishing in England's rural areas dropped by
26,000, or almost 16%. Over the same period, almost 230,000 net
new jobs were created in distribution, hotels and restaurants,
and in banking and finance—almost nine times as many as
were lost from agriculture and fishing.[7]
Overall, the number of jobs in England's rural areas grew by 275,000—a
proportionately greater improvement over the five year period
(5.3%) than for urban areas (4.7%).
5.2 The progressive dismantling of Pillar
1 would, in general, be a good thing for the economic development
of the rural areas of the UK. Currently, Pillar 1 serves to ossify
rural economies and perpetuates the case for special and separate
treatment of agriculture. However, there are some rural areas
of the UK that remain relatively more dependent on agriculture
and tourism than elsewhere. Defra's recent study of productivity
in rural England has highlighted areas locked in a low-wage/low
productivity local economy.[8]
In these areas, a rapid dismantling of the CAP, with swift removal
of agricultural support, could have damaging consequences if there
were to be no concomitant safety net to facilitate rural economic
development. We are not arguing here for the perpetuation of agricultural
support, and thus the perpetuation of this relatively higher dependence
upon a low-wage economy. Rather, we are arguing that care would
need to be taken in how that change is managed. In particular,
we are highlighting the need for time-limited structural adjustment
programmes, perhaps of the kind developed under the Objective
5b programmes from 1989 to 2000 under the Structural Funds.
6. DELIVERING
CAP REFORM IN
PRACTICE
6.1 The Government's vision is a useful
starting point for a debate first within the UK and then among
the Member States about the future direction of CAP reform. However,
it suffers from a lack of clarity on how such a vision might be
achieved. How can an alliance of interests around a strong reform
agenda be built and maintained? Unfortunately, the UK Government
has undermined its credibility in the search for a route map through
CAP reform by proposing cuts in that part of the CAP budget allocated
to rural development.
6.2 The UK Government should press the need
to return to the Cork agenda, initiated in 1996. In addition to
this, it should press for improvements in the structure, coverage,
financing and delivery of Pillar 2, to help ensure that Pillar
2 can more successfully meet its objectives, and become a viable
alternative to the case for simply maintaining Pillar 1 as it
stands. The Government should play a leading role in promoting
a forward-looking vision for the growth and development of Pillar
2. It should certainly cease including Pillar 2 in calls for CAP
budget cuts (as this sends a mixed signal to other Member States
and the Commission).
6.3 There are a whole series of detailed
reforms that need to be put in place to improve the efficacy of
the implementation of Pillar 2. Not least among these is that
EU allocations to Pillar 2 should be based on objective assessments
of need and not simply on the basis of rolling forward historical
spending levels.
6.4 The Government should conduct a detailed
review of the potential for the development of Pillar 2 (a companion
document to its future vision for CAP reform). What ideally should
Pillar 2 look like in a world where Pillar 1 is progressively
dismantled? It should call for an EU-wide review along the same
lines.
February 2006
5 For further discussion, see Ministry of Agriculture,
Fisheries and Food Agricultural Advisory Group (1999) Europe's
Agriculture: The Case for Change. PB3922. London: MAFF. Back
6
This part of our memorandum draws upon the findings of a study
of the planning and early implementation of programmes under the
RDR that we conducted with colleagues across Europe (Dwyer et
al, [2002] Europe's Rural Futures, Report to WWF and
the Land Use Policy Group of the GB Countryside Agencies). Back
7
Countryside Agency (2004) The State of the Countryside 2004.
Cheltenham: Countryside Agency, p 236. Back
8
Defra (2005) Productivity in Rural England. Defra: Rural
Economics Unit. Back
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