Memorandum submitted by Professor W Grant
(CAP 29)
1. Underlying the debate about the future
of the CAP are two different perspectives. There are those who
think that there should only be intervention by government and
the EU where there are identifiable market failures that are remediable
by government action. Others consider that agriculture is a sector
that is different from other parts of the economy and requires
special treatment.
2. It is all worth bearing in mind that
an implicit premise of much of Commission policy is that two types
of agriculture can co-exist in Europe. One is a competitive international
agriculture that should be able to compete on international markets
without subsidy and with reduced levels of protection. Parts of
the arable sector would conform to this model. Then there is a
more peripheral, marginalised agriculture that is nevertheless
important because of its contribution to the maintenance of remote
communities and cherished landscapes. This is often, although
not always, livestock farming. The best economic way forward for
this form of agriculture, apart from diversification, is through
high value added, niche production.
3. Food security. There are two broad issues
that need to be tackled here, one about how important food security
concerns are and one about the balance between the production
of food and fuel. In his recent speech to the National Farmers'
Union, Commissioner Mandelson argued that food security is one
reason that agriculture as an economic sector had to be treated
differently. Food security is being pushed as a justification
for continued intervention by some farmers. The difficulty is
that it can be used as a portmanteau justification that could
permit unlimited subsidies. It was certainly a key factor when
the CAP was devised against the background of the Cold War and
memories of post-war food shortages in Europe. One has to be careful
about the scenarios that are envisaged when one thinks about food
security. It is difficult to think of a terrorist action that
would lead to a major and prolonged disruption of the supply chain.
What might be a longer-term issue is a change in the world supply
and demand balance, but this is difficult to forecast accurately.
4. A related issue is the likely increase
in the agricultural production of bio fuels and whether any view
should be taken on the balance between food and fuel production
on UK land. Issues about energy security might become relevant
here.
5. The National Farmers' Union is concerned
that its members in the UK might be disadvantaged in relation
to others elsewhere in Europe given the Government's vision. One
might well see a creeping re-nationalisation of policy and indeed
to some extent that is embedded in the most recent reforms. This
could raise the issue of whether state aids to agriculture should
be reviewed as part of competition policy.
6. If current or future policies led to
the abandonment of land, this could have adverse environmental
effects, particularly in terms of biodiversity. Land that reverts
to scrub is generally less supportive of biodiversity and also
restricts access for recreational uses such as walking. Certain
types of plants can only be sustained in a landscape if the land
is grazed.
7. One has to be cautious about how far
proposed changes to the CAP would lower food prices. Any policy
that led to a significant reduction in the area farmed in the
EU would affect the global supply/demand balance and hence "world
prices" for agricultural commodities. Reduced public spending
on the CAP would probably be transferred to other forms of spending
so reductions in taxation as a result would probably be small.
8. How far a revised CAP would enable EU
farmers to be more competitive depends in part on what happens
in the Doha Round and subsequent international trade negotiations.
Brazil would be the major beneficiary of substantial liberalisation.
The Geographical Indications issue is more important for Europe
than is generally recognised because it is tied to the success
of a strategy that emphasises products that sell on quality rather
than price.
9. In broad brush terms, what the new member
states need to do is to reduce the number of very small farmers
in their countries and to modernise and improve their rural infrastructure.
Progressive farmers will use enhanced income streams to invest
in their enterprises, but their efforts may be offset by deficiencies
in the infrastructure, eg, legal framework, communications, credit
systems. This would imply a greater increase in Pillar 2 spending
than is projected at present.
10. The UK's rural economy is not monolithic,
but what is evident is that more remote and higher areas are more
reliant on subsidy for survival. Within the peripheral areas,
some locations are more able than others to take advantage of
diversification opportunities made available by rural tourism.
11. In his recent speech Commissioner Mandelson
disputed the argument that the CAP was a significant stumbling
block for the economic development of poorer countries. He stated,
"I am not going to be swayed by a lazy political correctness
into giving ground in agriculture simply because this will please
a vociferous lobby that has misunderstood what is really needed
to tackle global poverty." It could be argued that global
south NGOs have well researched arguments to suggest that CAP
has disadvantaged farmers in developing countries, particularly
in terms of export subsidies and restrictions to market access.
However, the picture is quite complex and, depending on how it
is undertaken, it is possible for liberalisation to benefit emerging
countries but not to help least developed countries, eg, the case
of sugar.
12. I am broadly in support of the Vision
document. However, we must remember that we do not start with
a blank sheet of paper. Farming has grown used to high levels
of subsidy and protection. This has produced a mindset in which
new initiatives, eg, on bio-fuels, are responded to by questions
about the availability of subsidies or tax breaks. Nevertheless,
any too rapid reduction in subsidy and protection could undermine
economic, social and environmental sustainability in rural areas.
This is why there has always been a strong case for replacing
subsidies by a bond that would serve as a capital asset or could
be retained to generate an income stream. In reviewing the future
of the CAP, analysing the problems is in some ways the easier
part. Devising a strategy for building a broad based coalition
across the EU for reform has been a problem for over 40 years
and is not one that can be easily resolved.
March 2006
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