Documents considered by the Committee on 15 December 2010 - European Scrutiny Committee Contents

7 The CAP towards 2020



COM(10) 672

Commission Communication: The CAP towards 2020 — meeting the food, natural resources and territorial challenges of the future
Legal base
Document originated18 November 2010
Deposited in Parliament25 November 2010
DepartmentEnvironment, Food & Rural Affairs
Basis of considerationEM of 8 December 2010
Previous Committee ReportNone, but see footnotes
To be discussed in CouncilSee paragraph 7.27
Committee's assessmentPolitically important
Committee's decisionNot cleared; further information awaited


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.


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.


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.


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.


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.


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.


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.


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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