7 The CAP towards 2020
(32233)
16348/10
COM(10) 672
| Commission Communication: The CAP towards 2020 meeting the food, natural resources and territorial challenges of the future
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Legal base |
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Document originated | 18 November 2010
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Deposited in Parliament | 25 November 2010
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Department | Environment, Food & Rural Affairs
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Basis of consideration | EM of 8 December 2010
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Previous Committee Report | None, but see footnotes
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To be discussed in Council | See paragraph 7.27
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Committee's assessment | Politically important
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Committee's decision | Not cleared; further information awaited
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Background
7.1 Since 1992, there have been a number of reforms
of the Common Agricultural Policy (CAP), aimed at replacing support
provided through market-related measures (such as intervention
buying) by direct income payments to producers. This process was
taken a stage further in 2003 by the introduction for most sectors
of the "decoupled" Single Payment Scheme (SPS), which
removed the previous need for a link between current agricultural
production and the receipt of direct payments under the so-called
first pillar of the CAP, and strengthened rural development as
the second pillar. This was followed by reforms of the sugar,
fruit and vegetables, and wine regimes.
7.2 The Commission believed that, as a result of
these reforms, the CAP was now fundamentally different, with this
leading to both an increase in the competitiveness of European
agriculture and to environmental and other improvements (in areas
such as food safety and quality, and animal welfare). However,
it also said that, if the reform process was to continue, it was
necessary to evaluate whether it was operating as it should, and
to identify any further improvements which should be made. It
accordingly put forward in November 2007 a Communication[33]
comprising a "Health Check" of the CAP, in which it
identified three main issues the Single Payment Scheme;
improving market orientation; and responding to new challenges
(notably managing risk, climate change, bio-energy, water management
and biodiversity, and strengthening the environmental pillar).
7.3 The Commission subsequently suggested that the
aims of its "Health Check" Communication had taken on
a new dimension with the sharp rise in the price of many agricultural
commodities, and, as our predecessors noted in their Report on
25 June 2008, it sought in May 2008 to give legislative effect[34]
to the proposals contained in that document. It also pointed out
that, with the overall CAP budget fixed until 2013, the additional
funding needed until then for these measures could only be realised
by an increase in compulsory modulation[35]
a step which it estimated would generate some 5
billion of additional funding across the Community for environmental
measures over the four year period to 2013.
7.4 Our predecessors also noted that, whilst the
UK welcomed the proposals as regards the Single Payment Scheme,
it preferred a decoupling of all the remaining production-linked
payments; and that, in also welcoming a clear timetable for phasing
out market controls, it wanted to ensure a smooth phase-out of
milk quotas, and that the key environmental benefits provided
by set-aside are captured by other measures, where appropriate.
7.5 On the basis that the CAP still faces a set of
challenges which require the EU to make a strategic choice as
regards the long-term future of its agriculture and rural areas,
the Commission says that it has since then organised an extensive
public debate, in the light of which it has now put forward this
Communication. The consultation period on this will close on the
25 January 2011, and the responses will feed into an Impact Assessment.
The current document
7.6 The Commission notes that
agriculture is an integral part of the European economy and society,
and that any significant cut back would generate losses in linked
sectors, notably the agri-food chain, and that other rural activities,
such as tourism and local and public services, would also be affected.
It says that the discussions it has held show an overwhelming
majority in favour of the CAP remaining a strong common policy,
structured around its two pillars support for agricultural
production, and rural development measures. Also, it was felt
that the policy should pursue the following strategic aims:
· to preserve
food production potential on a sustainable basis in order to guarantee
long-term food security for Europe and to contribute to growing
world food demand (which FAO expect to have increased by 70% in
2050), having particular regard to recent instances of increased
market instability;
· to support
farming communities which provide food of quality, value and diversity,
produced sustainably in a way which maintains the rural landscape
and combats biodiversity loss;
· to maintain
viable rural communities.
In addition, it was felt that reform of the CAP must
continue to promote greater competitiveness, efficient use of
taxpayer resources, and effective public policy returns, in line
with the Commission's recent Communication[36]
on the Budget Review.
THE CAP REFORM PATH
7.7 The Commission notes that
the main objectives of the CAP set out in the Treaty of Rome have
remained the same over the years, but that the reform path taken
since the early 1990s has led to a completely new policy structure,
which has also been affected by successive enlargements and the
public's demand that due account should be taken of the environment,
food safety and quality, health, nutrition, animal health and
welfare, plant health, the preservation of the countryside and
biodiversity, and climate change. It notes that the introduction
of direct payments, decoupled from production, has been a lever
for consistent market-orientated reforms, which have increased
the competitiveness of the sector by encouraging farmers to adapt
to market conditions. It also points out that market measures,
which used to be the main instruments of the CAP, merely provide
today a safety net used only when prices decline significantly,
and that other elements, including quality policy, promotion and
organic farming, have an important impact on farmers.
7.8 The Commission concludes that, as a result of
the present set of measures, the CAP contributes to a territorially
and environmentally balanced EU agriculture. It also suggests
that, if it is to deliver more benefits in future, a strong public
policy is needed because these cannot be achieved through the
normal functioning of the markets, and it believes that withdrawing
public support would lead to a greater concentration of production
in areas with favourable conditions, and the use of more intensive
farming practices, whilst the less competitive areas would face
marginalisation and land abandonment, leading to increased environmental
pressures, the deterioration of valuable habitats, and an irreversible
deterioration of productive capacity.
THE CHALLENGES
Food security
7.9 The Commission suggests that,
given demand worldwide will continue rising in the future, the
EU should be able to help meet this, and that it therefore needs
to maintain (and improve) its productive capacity, whilst respecting
its international trade commitments. It comments that a strong
agricultural sector is vital if the food industry is to remain
an important part of the EU economy, but that consumers demand
high quality and a wide choice of products, including local products,
which reflect high safety, quality nutritional and welfare standards.
At the same time, it observes that EU agriculture faces a considerably
more competitive environment, with an increasingly integrated
world economy and a more liberal trading system, particularly
if the Doha Round negotiations are successful within the WTO.
The Commission says that this is a challenge for EU farmers, but
also an opportunity for exporters, and that it is therefore important
to continue to improve the sector's competitiveness and productivity:
however, it also acknowledges that the CAP will in future face
greater uncertainty and increased volatility, and will have to
operate in the aftermath of the financial crisis, which has seriously
affected agriculture and rural areas.[37]
Environment and climate change
7.10 The Commission notes that
agriculture and forestry contribute to landscape, farmland biodiversity,
climate stability and resilience to natural disasters, such as
flooding, drought and fire, but that it also has the potential
to put pressure on the environment, leading to soil depletion,
water shortages and pollution, and the loss of wildlife habitats.
It also says that, although greenhouse gas emissions from agriculture
in the EU have decreased by 20% since 1990, further efforts will
be needed to meet the EU's energy and climate agenda, and that
it is therefore important to unlock the sector's potential to
make a positive contribution in areas such as energy efficiency,
biomass and renewable energy production, carbon sequestration,
and the protection of carbon in soils.
Territorial balance
7.11 The Commission observes
that, as a result of diversification, a growing number of rural
areas have become increasingly driven by non-agricultural factors,
although it adds that their vitality and potential still remain
closely linked to a competitive and dynamic farming sector, particularly
in predominantly rural areas (where the primary sector represents
around 5% of value added and 16% of employment), and in the new
Member States. It also notes the role of agriculture in generating
additional economic activities, such as food processing, tourism
and trade, adding that in many areas it forms the basis of local
traditions and social identity.
THE NEED FOR REFORM
7.12 The Commission says that,
despite its evolution, the CAP needs to respond to new challenges,
notably rising concerns over EU and global food security; the
need for sustainable management of water, air, biodiversity and
soil; the increasing pressure on production conditions arising
from climate change; increasing globalisation and price volatility;
the need to make best use of the diversity of EU farm structures;
to strengthen territorial and social cohesion in rural areas;
the need to provide an equitable and balanced level of support
between Member States and farmers; and the need to simplify its
administrative procedures. It adds that, by responding to these
challenges, the CAP will also contribute to the EU 2020 Strategy
in terms of smart, sustainable and inclusive growth.
FUTURE CAP OBJECTIVES
7.13 The Commission suggest that
a future CAP would have three main objectives:
Viable food production
This would involve:
· contributing
to farm incomes and limiting income variability, bearing in mind
that income volatility and natural risks are more marked than
in most other sectors, and that average income and profitability
levels are below those in the rest of the economy;
· improving
the competitiveness of the sector and enhancing its share of the
value of the food chain, which is adversely affected by its fragmentation,
by competition from the world market, and by having to meet environmental
and other objectives; and
· compensating
for production difficulties in areas with specific natural constraints.
Sustainable management of natural resources and
climate action
This would involve:
· guaranteeing
sustainable production practices and securing provision of environmental
public goods;
· fostering
green growth through innovation, requiring new technologies, new
products, changing production processes, and supporting new patterns
of demand; and
· pursuing
climate change mitigation and adaptation.
Balanced territorial development
This would mean:
· supporting
rural employment and maintaining the social fabric of rural areas;
and
· promoting
diversification; allowing for structural diversity in farming
systems, improving conditions for small farms, and developing
local markets.
7.14 The Commission says that,
to achieve all these objectives, public support for agriculture
and the rural areas will need to be maintained, and that policies
will therefore need to be set at European level in order to ensure
fair conditions, with a common set of objectives, principles and
rules. It also suggests that this would provide for a more efficient
use of budgetary resources than a set of national policies; and
that, in addition to single market concerns, several other objectives
are best addressed at trans-national level, including cohesion
across Member States and regions, cross-border environmental problems,
and global challenges.
REFORM ORIENTATION
7.15 The Commission says that
all the potential options imply changes in the present CAP instruments,
and it explores how these might be adapted to respond more efficiently
to the objectives it has identified.
Direct payments
7.16 The Commission suggests
that the necessary adaptations relate to the redistribution, redesign
and better targeting of support, based on both economic and environmental
criteria. It notes that a single, flat rate direct payment was
one option floated in public discussion, but that the very difficult
economic and natural conditions facing producers require an equitable
distribution, the question being how to achieve this in a pragmatic,
economically and politically feasible manner, whilst avoiding
major disruption. It says that one possibility would be a system
which limits the gains and losses of Member States by guaranteeing
that farmers in all Member States receive on average a minimum
share of the EU-wide average level of direct payments.
7.17 In particular, it suggest that payments to active
farmers would in future be based on:
· basic
income, through a decoupled payment, providing
a uniform level of obligatory support for all farmers in a Member
State, involving transferable entitlements linked to eligible
agricultural land and meeting cross-compliance requirements: also,
introducing an upper ceiling for payments received by large individual
farms would improve the distribution of payments, subject to the
mitigation of any disproportionate effect on large farms employing
large numbers;
· a mandatory
"greening" component, supporting environmental measures,
with priority being given to non-contractual actions (such as
permanent pasture, green cover, crop rotation and ecological set-aside)
which address both climate and environmental policy goals, but
go beyond cross-compliance;
· the
promotion of sustainable agricultural development in areas
with specific natural constraints by providing additional
income support in the form of an area-based payment, which would
complement the support given under the second pillar;
· voluntary
coupled support, within clearly defined
limits, to take account of specific problems in certain regions
where particular types of farming are considered important for
economic or social reasons;
· a simple
and specific support scheme for small farmers;
· simplification
of cross-compliance rules.
The Commission says that these changes should go
hand in hand with a better definition and targeting of support
to active farmers only.
Market measures
7.18 The Commission says that
there is a broad consensus that the overall market orientation
of the CAP should be retained, whilst keeping in place market
management tools, and it notes that the dairy market situation
in 2009 highlighted the important role of those mechanisms in
times of crisis. However, it suggests that those instruments could
be streamlined and simplified, at the same time as introducing
new policy elements relating to the functioning of the food chain.
It identifies such adaptations as including an extension of the
intervention period, and the use of disturbance clauses and private
storage, but says that these should be used only as a safety net.
7.19 The Commission says that a proposal for a revised
quality policy will be presented by the end of 2010 to improve
the ability of farmers to convey to consumers specific qualities
or attributes of their product; that the removal of dairy quotas
will take place in 2015; that it will table proposals shortly
to enable long term planning for the dairy sector; and that several
options for the future of sugar, including the non-disruptive
end of quotas, need to be examined, given that the present regime
is due to expire in 2014-15. The Commission also says that it
is necessary to improve the functioning of the food chain, since
the long term prospects for agriculture will not improve if farmers
cannot reverse the trend towards a steadily decreasing share of
the added value which it generates. It adds that key considerations
include the current imbalance of bargaining power along the chain,
the level of competition at each stage, contractual relations,
the need for consolidation and restructuring of the farm sector,
transparency, and the functioning of markets for agricultural
derivatives.
Rural development
7.20 The Commission says that
rural development has proved its value as an integral part of
the CAP by reinforcing the sustainability of the EU's farm sector
and rural areas. It notes that there are strong calls for the
policy to continue to deliver a wide range of benefits for farming,
the countryside and wider society, and contribute to the competitiveness
of agriculture, the sustainable management of natural resources,
and the balanced territorial development of rural areas throughout
the EU: and it adds that, within this framework, environment,
climate change and innovation should more than ever be the guiding
themes.
7.21 The Commission points out that, for these objectives
to translate into results on the ground, effective delivery mechanisms
are of paramount importance, and it suggests that the current
strategic approach would be strengthened by setting quantified
targets at EU and then programme level, possibly coupled with
incentives. It also believes that it will be essential to strengthen
the coherence between rural development policy and other EU policies,
whilst simplifying and cutting red tape, and that a common strategic
framework for EU funds might be considered. It adds that a wide
range of tools would remain useful, but that in addition a risk
management toolkit should be made available to Member States to
deal with income uncertainties and market volatility. Finally,
the Commission says that objective criteria should be considered
for the distribution of rural development support among Member
States, whilst limiting significant disruption of the current
system, and that it is also essential to further strengthen and
simplify quality and promotion policies.
BROAD POLICY OPTIONS
7.22 The Commission suggest that
the following three broad policy options all based on
the two pillar system, but with a different balance between the
pillars should be considered:
Option 1
This would introduce further gradual changes to the
present policy framework, building upon those aspects which function
well, and focusing on adjustment to those areas attracting most
criticism, notably the equity of the distribution of direct payments
between Member States. The Commission says that this would ensure
continuity and stability with the current CAP, thus facilitating
long-term planning for those in the food chain.
Option 2
This would make major overhauls in order to ensure
that policy becomes more sustainable, and that the balance between
different policy objectives, farmers and Member States is better
met, with this being done through targeted measures. The Commission
says that this option would imply greater spending efficiency
and greater focus on EU value added, and would also allow economic,
environmental and social challenges to be addressed, and strengthen
the contribution of agriculture and rural areas to the objectives
of Europe 2020.
Option 3
This would imply a more far reaching reform, with
a strong focus on environmental and climate change objectives,
whilst moving away gradually from income support and most market
measures. The Commission adds that providing a clear financial
focus on environmental and climate change issues through the Regional
Development policy framework would encourage the creation of regional
strategies in order to assure the implementation of EU objectives
The Government's view
7.23 In his Explanatory Memorandum
of 8 December 2010, the Minister of State for Agriculture and
Food at the Department for Environment, Food & Rural Affairs
(Mr Jim Paice) says that the Government will respond to the Commission's
consultation in due course, but in the meantime he has the following
comments.
7.24 He notes that the Communication is a high level
document, which does not set out in detail where the balance will
lie between the role of the EU and that of Member States, but
that there is nothing in it which leads the Government to believe
that subsequent detailed legislative proposals would be likely
to breach the subsidiarity principle. He says the Government's
assessment of the challenges and opportunities for EU agriculture
is similar to that of the Commission, and that it believes farmers
will be required to adapt in order to respond effectively, and
that ambitious reform of the CAP for the next EU budget period
(2014-20) is therefore needed, to establish the right framework
to facilitate the transformational change needed to enable EU
agriculture to realise its potential. He notes that, although
the Commission proposes three future options, the majority of
the Communication focuses on option 2, whereas the Government
believes it will be important to consider all options for reform
to deliver a thriving, sustainable and competitive EU agriculture
sector. He also says that, whilst recent reforms have been in
the right direction, this process needs to be accelerated, promoting
greater competitiveness, efficient use of taxpayer resources and
effective delivery of public goods, particularly for the environment.
7.25 The Minister says that the Government therefore
welcomes references in the Communication to continuing to improve
the market orientation of CAP, alongside the need for enhanced
competitiveness, innovation, the sustainable management of natural
resources and climate action. However, it is concerned that the
Communication lacks the ideas and ambition to drive the transformational
reform needed, and that it risks missing an opportunity to put
in place reforms to make the progress required by 2020. He adds
that the UK would be particularly concerned with any proposals
that increase the complexity of the CAP for governments or farmers.
7.26 The Minister says that the Government is also
disappointed that the document lacks recognition of the current
fiscal and economic challenges, and believes that it must be considered
alongside the recent Commission Communication on the Budget Review.
He points out that the current CAP costs around £360 billion
over the course of the current Financial Perspective (2007-2013),
equivalent to some 43% of the EU Budget, and that its budget for
the Financial Perspective 2014-2020 will be established under
the EU's Multiannual Financial Framework (MFF) for that period,
on which draft proposals are expected to emerge in 2011, with
negotiations running in parallel with those on the CAP. He says
that the Government believes that the EU Budget and, as
part of that, the CAP budget must fall very materially
during the next Financial Perspective. It would also like to see
agriculture becoming competitive without reliance on subsidies,
and believes that the next Financial Perspective is the opportunity
to chart a course of reducing reliance on direct subsidies and
leading to their abolition, and that the value for money of remaining
CAP expenditure must increase, with a higher share spent on environmental
issues.
7.27 The Minister says that, after the end of the
consultation period, the Commission is expected to publish its
resulting draft legislation in the summer of 2011, and that negotiations
are expected to continue over the following two years, with the
measures in question, including appropriate implementing legislation
and the corresponding budget being agreed in time
for the start of the next Financial Perspective in 2014.
Conclusion
7.28 Although the Commission
acknowledges the need for further reform of the Common Agricultural
Policy, and has produced a useful analysis of the various issues
which need to be considered, the remedies it proposes are in extremely
general terms, making it difficult to identify precisely what
steps it has in mind, still less to assess their implications.
However, we note that the Government intends to respond to the
Commission's consultation, and we would like to take its comments
into account before considering the document further. In the meantime,
we are drawing the document to the attention of the House.
33 (29193) 15351/07: see HC 16-vii (2007-08), chapter
1 (9 January 2008). Back
34
(29703) 9656/08 + ADDs 1-2: see HC 16-xxv (2007-08), chapter 1
(25 June 2008). Back
35
Under which Member States must divert a given percentage from
direct support payments under Pillar 1 into Pillar 2 measures. Back
36
(32097) 15285/10: see chapter 4 of this Report. Back
37
The Commission says that, after a decade of mere stagnation, and
being significantly lower than in the rest of the economy, agricultural
income dropped substantially in 2009. Back
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