House of Commons - The Common Agricultural Policy after 2013 - Environment, Food and Rural Affairs Committee

The Common Agricultural Policy after 2013 - Environment, Food and Rural Affairs Committee Contents

2 Objectives of the Common Agricultural Policy

27. The original objectives of the Common Agricultural Policy were set out in the Treaty establishing the European Economic Community (also known as the Treaty of Rome) in 1957. They were retained in the Treaty on the Functioning of the European Union (TFEU) (Box 1).

Box 1: Article 39 of the Treaty on the Functioning of the European Union (TFEU)
The objectives of the common agricultural policy[31]
1. The objectives of the common agricultural policy shall be:
(a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour;
(b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture;
(c) to stabilise markets;
(d) to assure the availability of supplies;
(e) to ensure that supplies reach consumers at reasonable prices.

The need for a common policy on agriculture

28. When the Treaty of Rome established the Common Market, there was strong state intervention in agriculture in the six founding Member States. If agricultural produce was to be included in the free movement of goods while maintaining state intervention, national intervention mechanisms had to be made compatible across the Community. This is the basic purpose on which the common agricultural policy was founded and remains valid today.[32] Dr Moss, Principal Agricultural Economist at the Agri-Food and Biosciences Institute (AFBI) and Senior Lecturer at Queen's University, Belfast, stated "measures which impact on the functioning of the markets for agricultural commodities should remain common".[33] The Commission's Communication states that the "overwhelming majority of views expressed [in response to their public consultation] concurred that the future CAP should remain a strong common policy.[34] A Eurobarometer survey conducted in early 2010 concluded there was "an overall preference for the European level to manage agricultural issues".[35]

29. It is asserted, through the subsidiarity principle, that EU-level action is justified on issues that cross national borders.[36] Agricultural policy influences several supra-national issues, such as food security (as agricultural products move freely within the EU), the preservation of natural resources and biodiversity (although specific habitats might be deemed a local issue), and tackling climate change. For the same reason, a common EU agricultural policy is desirable for the purpose of international trade negotiations, giving Member States greater influence than they would have as lone entities.

30. Member States are likely to differ in the priority that they place on agriculture and rural development. The potential for distortion of competition because some producers are supported more than others increases the more CAP expenditure or policy is determined nationally or is co-financed. The Andersons Centre claimed that UK farmers would be placed at a disadvantage if more funding was decided nationally as "the UK Treasury would strongly resist providing funds".[37] Several other witnesses agreed that a 'renationalisation' of the budget could harm UK farmers' competitiveness.[38]

31. Given the strategic importance of food and the openness of markets within the EU, it is essential that the EU retains a common policy on agriculture. First, this helps to maintain fair competition for agricultural products within the EU. Second, agricultural policy affects cross-border issues such as food security and climate change where action at a supra-national level is appropriate. Third, through acting collectively, the EU is able to be a major player in global agricultural trade.

Objectives and priorities for the post-2013 CAP

32. The Commission's Communication gives three overall objectives for the future CAP, and several sub-objectives within each main objective (Box 2).

Box 2: The Commission's objectives for the future CAP[39]
Objective 1: Viable food production

to contribute to farm incomes and limit farm income variability
to improve the competitiveness of the agricultural sector and to enhance its value share in the food chain
to compensate for production difficulties in areas with specific natural constraints because such regions are at increased risk of land abandonment
Objective 2: Sustainable management of natural resources and climate action
to guarantee sustainable production practices and secure the enhanced provision of environmental public goods
to foster green growth through innovation
to pursue climate change mitigation and adaptation actions

Objective 3: Balanced territorial development

to support rural employment and maintaining the social fabric of rural areas
to improve the rural economy and promote diversification
to allow for structural diversity in the farming systems, improve the conditions for small farmers and develop local markets

33. Although witnesses agreed the need for a common policy, we received mixed views about the objectives of the policy in future, ranging from maintaining farmers' incomes through providing food security to protection of the environment and rural landscapes. In the following section, we present the views of UK interested parties on the purpose of the CAP and recommend a set of objectives and priorities for our agricultural policy.

FOOD SECURITY

34. Our predecessor Committee in their inquiry Securing food supplies to 2050: the challenge for the UK noted the difficulty with defining 'food security'.[40] For some, food security is simply about access to enough food, for others it is synonymous with self-sufficiency or even food sovereignty.[41] In this report, we concur with our predecessors that food security is 'to have access at all times to sufficient, safe, sustainable and nutritious food, at fair prices, so as to help ensure an active and healthy life'.[42]

35. The urgent need to address the food security question has been impressed on the Committee by the recent Foresight report, the Future of Food and Farming.[43] This report confirmed the UN Food and Agriculture Organisation (FAO)'s predictions that food supplies will need to double to meet the predicted demands of 8-10 billion people by 2050, without bringing more land into production. Moreover, this "growing demand for food must be met against a backdrop of rising global temperatures and changing patterns of precipitation".[44] We also note the conclusions of the Securing food supplies to 2050 inquiry that: "Doing nothing to contribute to the world's food supplies would be morally unacceptable: at a time when a fundamental shift in thinking is required, the UK should set an example, not bury its head in the sand".[45]

36. This does not mean that we should use the CAP as a tool to increase EU production now beyond the level suggested by market conditions, which would be a return to post-war logic. The National Farmers' Union (NFU) claim that UK self-sufficiency in all food-groups (including for example tropical fruits that cannot be grown here) will fall from 59% to under 50% by 2030 if current trends continue.[46] However, we should not strive for total self-sufficiency as this would be impossible with our current diets. The UK is currently 72% self-sufficient in domestically-produced foods, which are more relevant to our basic food security in terms of calorific intake than self-sufficiency over all food groups.[47] The Future of Food and Farming report rejected food self-sufficiency but emphasised that food system governance needed to be improved as well, for example to avoid the introduction of export bans at times of food stress.[48]

37. There was a broad consensus among witnesses that the strategic importance of food justified Government intervention through agricultural policy to ensure food security; for many this includes retaining a significant degree of self-sufficiency, at least until global governance of the food system has been improved.[49] For example, Dr Moss said:

I think it is important that Europe retains a significant degree of self-sufficiency in food for strategic reasons. Very simply [...] we can opt not to buy a motor car, we can opt not to have fancy clothes or live in fancy houses, but food is of absolute importance; imperative importance.[50]

38. Food security involves a balance between production and sustainability. Our future food security depends on sustainable management of the land and preservation of agricultural social capital.[51] The Minister of State for Agriculture and Rural Development told us that it was in the EU's strategic interest to increase food production capacity, pointing out that climate change projections suggest that "northern Europe will be increasingly the bread basket of the world".[52]

39. We believe that the EU will need to play a greater role in meeting food supply challenges in the future, particularly as future climate change may result in currently productive areas becoming less so. Until failures in the global governance system of food supply are addressed, there remains a strategic interest for the EU to retain a significant degree of food self-sufficiency. The first objective of the Common Agricultural Policy should be to maintain or enhance the EU's capacity to produce safe and high-quality food.

AGRICULTURAL COMPETITIVENESS

40. The European Commission believes that improving the viability of EU agriculture in a global market is central to the first objective of maintaining production capacity:

On the one hand, agriculture can potentially contribute substantially to many of the challenges faced by Europeans with right incentives and in the right setting [...] On the other hand, its structure is diverse and economic situation fragile [...] In effect, short-term survival dominates the perception of many farmers over the long-term, broader perspective. If agricultural policy does not address the former, it will have little success in promoting the latter.[53]

41. In the UK, agriculture accounts for a relatively small proportion of the workforce and GDP (about 0.5% of Gross Value Added.[54]) However, it contributes significantly to other parts of the economy: for example food and drink processing is the UK's largest manufacturing sector and buys two-thirds of the production of British farmers.[55] The Government wants to rebalance the economy away from services and the financial sector towards manufacturing. UK agriculture could be important in achieving this through its role in supporting the UK agri-food industry.[56]

42. The UK Government and devolved administrations consider improving the overall competitiveness and viability of UK agriculture to be key aims of the CAP. The Welsh Assembly Government wanted a CAP that "strengthens the competiveness of our land based industries",[57] and the Scottish Executive also aims to "optimise the productive use of natural resources".[58] Defra called for "transformational reforms which we believe are necessary to deliver a thriving, sustainable and internationally competitive EU farming sector" in order to reduce reliance on public subsidies.[59] Farming representatives and environmental NGOS also agreed with the need to tackle the issue of farm business competitiveness.[60]

43. Enhancing the competitiveness and viability of the EU agricultural sector should be the second objective of the CAP. A competitive and viable EU agricultural sector is the key to producing more while having less impact on the environment and to reducing farmers' reliance on income support from the tax-payer in the long-term.

NATURAL RESOURCES

44. Farmers are responsible for managing over half of the EU's land area.[61] Several witnesses, particularly Defra and environmental NGOs, emphasised the central role the CAP could play in sustainable land management. Defra argued that the future CAP should reward farmers for "delivering environmental benefits by managing the land effectively to promote long term resilience".[62] Similarly, the Country Land and Business Association (CLA) told us that:

We genuinely believe that farmers are primarily in business to produce food, but because they manage the bulk of the territory, they're the only businesses out there who can supply biodiversity, landscape management, water protection, climate protection over a wide scale, and in principle they're willing to do this, but they want to see it as a business.[63]

45. Markets tend not to reward farmers properly for their activities that deliver environmental or societal benefits, such as protecting farmland birds or ensuring a high standard of animal welfare—this is a form of market failure (Box 3). The Royal Society for the Protection of Birds (RSPB) said there is a "clear case for policy intervention, through the CAP, to secure environmental delivery due to the market failure to reward many environmental public goods";[64] similarly the Society for Biology said that "public subsidy should be for public goods".[65]

Box 3: Public Goods and Market Failures

The strict economic definition of a public good is a good whose consumption is non-excludable and non-rival. This means that the consumption of such a good by one individual does not reduce the amount of that good which can be consumed by any other individual (non-rival) and no-one can be excluded from the consumption of the good (non-excludable). Examples of public goods are law enforcement, defence and street lighting. Because of the nature of such goods, there is no market incentive to produce them as consumers cannot be charged (via the market) for their consumption, resulting in market failure. Consequently, public goods have traditionally been provided by public authorities/government.

Farmers often create public goods, including environmental protection, conservation of biodiversity, soil fertility and water quality, landscape preservation, food safety, animal and plant health, and rural development. Agricultural production also creates negative externalities, for example water pollution, which are not properly accounted for in the cost of the product and are therefore paid for by society. Although some witnesses referred to food production as a public good, this is not strictly true as there are efficient markets for food and if one person consumes the food, there is less available for others.[66]

46. The third objective of the CAP should be to ensure the sustainable management of the EU's natural resources, biodiversity and landscapes, recognising that farmers are the managers of over half of the EU's land area.

FARMERS' INCOMES

47. The European Commission gives "a fair standard of living for the agricultural community" as one of the ways to achieve its mission, which is to promote the sustainable development of Europe's agriculture and to ensure the well-being of its rural areas.[67] Commissioner Ciolo? told us that "one of the most important objectives of the Common Agricultural Policy is to ensure a good standard of living for farmers", adding that direct payments should ensure a minimum level of income for farmers.[68]

48. This emphasis on income support was not supported by all witnesses. Professor Swinbank, Emeritus Professor of Agricultural Economics, University of Reading, felt there was "no need for income support across the generality of European agriculture".[69] Dr Moss and the NFU argued that it would not be possible to deliver every single farmer in Europe an acceptable standard of living via the CAP.[70] Many agricultural economists question the use of the CAP as an income support policy as it is not means-tested and the available farm income data is not sufficient to enable this. In addition, Member States have their own mechanisms to deal with economic hardship—the Welfare State for example—which arguably are more efficient and targeted than EU-level measures.[71] The Minister described income for farmers as being at the top of his list of objectives for the reformed CAP, but emphasised that he did not mean this to be achieved through subsidies.[72]

49. Nonetheless there may be a convincing case for maintaining farmers' incomes in some areas of low productivity, where this is necessary to ensure the delivery of important public goods (Box 3). In our report into Farming in the Uplands, we concluded that farming activity was central to the future of the cherished landscapes and traditions of upland areas and should be supported through CAP instruments.[73] On the other hand, economists have argued that socioeconomic objectives, such as avoiding depopulation, could be achieved more efficiently through EU cohesion funding or national projects than through the CAP.[74]

50. The Minister told us he supported the use of the CAP in economically vulnerable areas, saying "we agree that there should be measures within in it [the proposals from the Commission], preferably in Pillar 2, to support those farmers in the uplands and in the hills".[75] However, Defra's written evidence suggests this could be achieved through instruments other than the CAP.[76] Given the importance of maintaining a common system of support for agriculture in the EU, we would argue that any support for farmers in less productive areas should be delivered through the CAP rather than through national instruments—to do otherwise risks creating competitive distortions that could negatively affect UK producers.

51. The impacts of climate change on European agriculture are unpredictable, but it is possible that some currently productive regions will become unsuitable for agricultural activity with consequences for the delivery of public goods. For this reason, future approaches to maintaining agriculture across the EU must be flexible to reflect changing circumstances.

52. The fourth objective of the CAP should be to help to maintain agricultural activity in areas where it delivers significant public benefits, such as the maintenance of biodiversity and cultural landscapes. However, the CAP should not aim to deliver an acceptable standard of living to every farmer in the EU through income support alone—farmers should be encouraged to look to the market for returns.

DIVERSITY OF FARMING SYSTEMS

53. The Commission's Communication gives 'structural diversity' in farming systems as one of the objectives of the CAP. The EU exhibits a wide range of different farming systems, ranging from semi-subsistence farming to large agri-businesses such as the Co-operative Group. Currently, EU agriculture has been unwilling to adopt some more intensive methods of farming, found for example in South America, such as the use of GM crops, cloning of livestock, or very large-scale dairy units ('super-dairies'). There was a general view among our witnesses that the public valued the current model of EU agriculture. For example, the CLA said:

This is the genuine question that we all have to ask ourselves: does the European public want and expect that its agricultural land is farmed South American-style, in estates of tens of thousands of hectares with 50 combines in a field? [...] We each have our own personal view on that. Some will say, "If it's cheap and efficient and high quality"—which it can be, and I'm not saying that those things are bad quality—"then bring it on." But others will say, "No, that's not the European way of doing it," and we're trying to find a balance in there. We will have some large farms, I hope, but I think Europe wants smaller farms, so that's part of it.[77]

54. The Campaign to Protect Rural England (CPRE) felt that the preservation of the cultural landscapes generated by farming should be one of the key objectives of the CAP. They expressed concern that a focus on improving competitiveness would lead to intensification and consolidation of production, with negative consequences for European agricultural landscapes and habitats.[78] During our inquiry into the English Uplands, we heard how the valued cultural heritage of the uplands, which had been preserved by its history of low-intensity land use, could be threatened by farm restructuring.[79]

55. Structural diversity in farming allows for the continuation of 'high nature value' (HNV) farming systems. These tend to be low intensity, low income and small-scale but maintain environmentally-friendly practices such as extensive grazing and leaving land fallow. Conservation groups have stressed the importance of protecting these farming systems as major reservoirs of European biodiversity.[80]

56. Small-scale farming, can also be important in maintaining connections between local communities and their food supply. George Lyon MEP, Rapporteur to the European Parliament's own-initiative report on the future of the Common Agricultural Policy after 2013, said "Local communities want to see local food production and therefore that is a priority we must still address in the future".[81] Commissioner Ciolo? noted that his public consultation on the future of the CAP highlighted a desire for small farmers to have more opportunities to play a role in the "the delivery of diversity of food and quality of food".[82]

57. We note that there are concerns that the untrammelled pursuit of agricultural competitiveness might have unwelcome consequences for the diversity of EU farming and the social and environmental benefits that flow from this, including cultural landscapes and local food sources. Equally, the Common Agricultural Policy should not seek to discourage restructuring and consolidation where this enables farmers to achieve greater competitiveness and profitability. The fifth objective of the CAP should be to foster diversity in EU agriculture, where this is valued by EU citizens, but not enforce it.

31 Official Journal of the European Union, C115, 9 May 2008, p 62. The Treaty of Lisbon, which entered into force on 1 December 2009, amended the Treaty establishing the European Community, which was renamed the Treaty on the Functioning of the European Union. Back

32 European Parliament Fact Sheet 4.1.1 The Treaty of Europe and Green Europe. Back

33 Ev 126 Back

34 The CAP towards 2020, p 2. Back

35 TNS Opinion and Social on behalf of the European Commission, Europeans, Agriculture and the Common Agricultural Policy-Summary Report, Special Eurobarometer 336, March 2010. It should be noted that only 57% of those surveyed had heard of the Common Agricultural Policy. Back

36 European Parliament Fact Sheet 1.2.2 Subsidiarity. Back

37 Ev w28 Back

38 For example, the Tenant Farmers Association (TFA) (Ev 110), the Royal Society for the Protection of Birds (RSPB) (Ev 107), Dr Moss, Principal Agricultural Economist, Agri-Food and Biosciences Institute (AFBI) and Senior Lecturer, Queen's University, Belfast (Ev 124), the National Assembly for Wales Rural Development Sub-Committee (Ev w23), the Welsh Assembly Government (Ev w31), the Scottish Agricultural College (Ev w35). Back

39 The CAP towards 2020, p 7. Back

40 EFRA Committee, Fourth Report of Session 2008-09, Securing food supplies up to 2050: the challenges faced by the UK, HC 213. Back

41 Food sovereignty as a term was coined by the Via Campesina in 1996. It encompasses the idea that people should have a right to locally produced and culturally appropriate food and to define their own food production systems (www.foodsovereignty.org) Back

42 EFRA Committee, Securing food supplies up to 2050: the challenges faced by the UK, para 6. Back