Memorandum by Berkley Hill, Professor
Emeritus of Policy Analysis, University of London (Imperial College
London)
This communication relates to only selected
Issues identified in Call for Evidence, issued 30 April, 2007.
It is submitted in a private capacity.
ISSUE ONE—OVERVIEW
What should be the long term objectives of the
CAP? Does the title "Common Agricultural Policy" aptly
fit your perceived objectives of the policy? What do you consider
to be the main pressures on the CAP as it currently is?
1. The official objectives of the CAP, as
agreed by EU15 Member States, are set out in Agenda 2000 in a
list that was developed from the objectives appearing in Article
39 of the 1957 Treaty of Rome and which, in effect, replace those
of the Treaty. The Agenda 2000 formulation was as follows:
— increase competitiveness internally
and externally in order to ensure that Union producers take full
advantage of positive world market developments;
— food safety and food quality,
which are both fundamental obligations towards consumers;
— ensuring a fair standard of
living for the agricultural community and contributing to the
stability of farm incomes;
— the integration of environmental
goals into the CAP;
— promotion of sustainable agriculture;
— the creation of alternative
job and income opportunities for farmers and their families; and
— simplification of Union legislation.
2. Commentators have concluded that, in
practice, the aim of ensuring a fair standard of living (the "income
objective") of the CAP has dominated spending under the CAP.[1]
Even after modulation, Pillar One (which supports income, primarily
now in the form of the Single Farm Payment) is still about four
times larger than Pillar Two (which includes agri-environment,
less-favoured area and other rural development spending).
3. Despite its prominence, the "income
objective" has never been set out clearly, for example by
defining what is meant by a fair standard of living, or who forms
the agricultural community (a conclusion supported in a 2004 report
by the EU Court of Auditors).[2]
Furthermore, CAP decision makers have never had access to statistical
evidence on the household incomes of farm operators and other
indicators of living standards in a form that would enable them
to assess the number and location of those whose living standards
were less than "fair". Only in 2007 has Eurostat commissioned
a feasibility study of how this sort of information could be made
available (a study in which the writer was part of the research
team).[3]
Only when such information is to hand could the CAP focus on the
cases most in need.
4. At present Pillar One support is given
to farm operators and their families in a blanket way, related
primarily to past levels of production and subsidy. The OECD[4]
(and others) have concluded that this represents a very inefficient
use of public funds, most support going to farms whose operators
have levels of income and wealth that compare very favourably
with those of the rest of society.
5. The majority of farm operators have incomes
that include rewards from non-farm activities; this takes many
forms but the most significant is income from off-farm jobs and
businesses. Diversification is a long-established feature of European
agriculture, and many small farms would be unviable without it.
6. Given that economic and technical pressures
will continue, changes in the structure of agriculture are inevitable.
Rather than cushion agricultural producers from these pressures
(which is the approach of Pillar One), the long-term and sustainable
objective of policy should be to enable them to adapt in a way
that produces an industry that is competitive and yet at the same
time meets the environmental and social aims of society. This
will need a further reform of the CAP in the direction started
in the 2003 Mid-term Review, with the phasing out of Pillar One
support (including the Single Farm Payment).
7. A recent review of historical situations
in which farmers have been subject to policy reforms[5]
suggests adjustment is part of normal practice, and it is easy
to underestimate the ability of farm families to make changes
to their businesses (such as by shifting balance between enterprises
or reduce inputs). Where more radical steps are needed, such as
changes in farm sizes or setting up a diversified activity, these
are facilitated by two factors; first, a working land market (in
owner-occupied and/or rented land) that enables transfers to take
place between those wanting more land and those wishing to release
it and, second, an adequately educated and trained labour force
(including the self-employed). Of course, in some circumstances
there may be environmental or social reasons why changes in current
practice should be prevented (for example, to maintain present
land-uses for landscape reasons). However, it is easy to make
ill-founded assumptions, for example that conserving the appearance
of the countryside is dependent on keeping the existing number
and sizes of farms, whereas the key factor is more likely to be
the type of farming system employed.
8. In short, the aims of the CAP should
be to facilitate the development of an industry that is competitive
and innovative. This is likely to lead to further reductions in
the numbers of people who depend primarily on farming for their
livelihood, though the development of pluriactivity will mean
that in many parts of the EU families will continue to live on
farms and form part of the rural community. At the same time measures
must be in place to protect the environmental features that society
wishes to conserve, using agriculture as a vehicle where this
is appropriate.
9. ISSUE 3—THE
SINGLE FARM
PAYMENT
10. Various factors suggest that The Single
Farm Payment is not a sustainable instrument of the CAP. These
include the following:
— Lack of economic rationale.
The direct payments introduced as part of the 1992 MacSharry CAP
reforms were a compensation for the reduction of market support
and a political expedient to achieve those reforms. The SFP is
a reformulation of this compensation, not directly related to
present production levels but linked to the occupation of land.
With the passage of time the equity (compensation) and political
economy (facilitating CAP reform) justifications recede into history.
Beyond this, there is very little, if any, economic rationale
for the continuation of the SFP as part of EU policy towards agriculture.
— High transparency and political
vulnerability. Related to the above, the transparency with
which transfers are made (direct payments) without any obvious
supply of services in return from beneficiaries has already attracted
media attention and makes them vulnerable to political criticism
and erosion.
— Impediment to structural
change. The link to land occupancy hampers the level of structural
change compared with that to be expected if the SFP were purely
a financial asset unlinked with occupancy. A case can be made
that the SFP is therefore imposing an economic cost on society
though, on the other hand, there may be some environmental implications
of rapid transfers of land from one group of owners to others.
— Policy prospect. The
Agriculture Commissioner has already signalled that the SFPs are
unlikely to survive beyond 2013.
ISSUE 5—RURAL
DEVELOPMENT—THE
EUROPEAN AGRICULTURAL
FUND FOR
RURAL DEVELOPMENT
(EAFRD), ITS OPERATION
AND FOCUS
ON AGRICULTURE,
AND ITS
CO-ORDINATION
11. The present writer has experience as an
evaluator working with the England Rural Development Programme
2000-06 (carrying out the baseline study) and as part of a team
considering the Welsh Rural Development Plans 2000-06 and 2007-13.[6]
In theory the process by which these are drawn up allows local
issues to be addressed; a SWOT analysis forms part of the process
by which the European Commission approves spending in support
of proposed schemes that are designed and administered are the
national (or sub-national) level.
12. The complexity of the funding stream
in the 2000-06 period severely handicapped the ability to assess
the performance of these RDPs. For example, in Objective 1 parts
of Wales certain schemes were financed from the Guidance part
of the old EAGGF that in other areas were financed from Guarantee,
while some were funded from other Structural Funds. Because evaluation
has to be carried out linked to budgetary lines, there was no
formal way in which an overall view could be taken. By bringing
rural development funding under a single instrument (EAFRD), in
future it should be much more straightforward to assess the performance
of interventions.
13. There is little doubt that the focus
on agriculture in EU policy on rural development is misplaced,
though history (especially CAP reform) makes this imbalance understandable.
Agriculture, as an economic activity, contributes only a very
small share to total incomes and employment in most rural areas.
According to the European Commission,[7]
even in areas classified as Predominantly Rural at NUTS3 level
in EU25 the primary sector (agriculture, forestry and fishing)
only accounted for 5.5% of GVA in 2003, and was only more than
10% in four countries (Estonia, Greece, Latvia, Lithuania, and
Portugal). Even in the rural parts of Wales, most of it classified
as Less Favoured Areas, farming occupies less than 5% of the resident
population. Thus support to agricultural development (diversification,
training, marketing, modernisation etc.) is unlikely to be a suitable
way of influencing the broader economy of these areas in a significant
manner. A case can be made that support to other industries and
sectors (such as support to village post offices, schools, other
small businesses in rural areas etc) could achieve economic and
social aims much more effectively and efficiently. On the other
hand, farming and forestry are very important to issues that involve
landscape and the natural environment. Agriculture and forestry
represent 78% of land use in the EU-25, ranging from 50% in Malta
to 95% in Poland.
14. Even within current agri-centric Rural
Development Programmes, for the period 2000-06 there is no certainty
that the balance between spending on investment in farming and
forestry, in training and development of human capital, in agri-environment
and support of hill farming, in organics, and in marketing improvement,
has been optimal. Allocation was heavily influenced by previous
commitments to agri-environmental payments, so that there was
only limited ability to reflect broader needs in the RDPs. Though
there was some provision for support to the broader quality of
life in rural communities in the 2000-06 RDPs, in England and
Wales spending has been small (though this is not necessarily
the case in all other Member States). Because of the mix of environmental
and economic aims, the balance of resources has to be a matter
of political judgement rather than value-for-money estimation.
Programmes for the 2007-13 period have been subject to minimum
spending levels for each of four Axes (including on using the
LEADER-type approach towards bottom-up development), though there
is no guarantee that this will give a mix that meets needs in
an appropriate way.
15. Unlike Pillar One support to agriculture,
public policies for rural development are a mix of EU, national
and sub-national interventions. Attention in this Evidence focuses
on the EU level, since this provides a consistent framework for
most of the spending explicitly directed at rural areas in Member
States, and national measures have to be consistent with EU policies.
However, the significance of purely national interventions (land
use planning, social security payments etc) to many aspects of
conditions in rural areas should not be underestimated.
ISSUE 6—RURAL
DEVELOPMENT—THE
CASE FOR
A HIGHER
LEVEL OF
EU FUNDING
16. It is difficult to give a categorical
answer on whether a higher level of EU funding for rural development
is justified. Any case for adjusting the level of EU funding for
rural development must reflect the coverage of the programmes
involved, which in turn depends on the provisions in the Rural
Development Regulations that underpin them.
17. On the one hand, there is some evidence
that more funds would enable the level of activity under the present
provisions to be expanded; for example, the designs of the Welsh
Rural Development Plans for 2000-06 and (especially) for 2007-13
were constrained by long-term agri-environmental commitments entered
into under previous schemes, leaving relatively little available
for initiatives, in particular for increasing the amount of support
provided for the non-agricultural parts of the rural economy.
Axis 3 within the Rural Development Regulation that covers the
programming period 2007-13 provides for enhancing the quality
of life in rural areas and diversification of the rural economy
by measures such as support for the creation and development of
micro-enterprises with a view to promoting entrepreneurship and
developing the economic fabric, encouragement of tourism activities,
basic services for the economy and rural population, village renewal
and development, and conservation and upgrading of the rural heritage.
A minimum of 10% of EU spending has to be on this Axis, though
in theory it could be far higher before feeling the constraints
of minimum spending on the other Axes. On the other hand, at scheme
level it is clear that uptake can reach capacity (for example
in diversification on farms, or afforestation possibilities),
and that situations can arise where using more resources would
not be effective. The possibility of absorbing more resources
has to be judged on a scheme-by-scheme basis.
18. However, the list of what may be tackled
under EU-supported Rural Development Programmes does not cover
many of the economic and social problems found in rural areas,
at least those encountered in England and Wales.[8]
These are often generic and also seen in non-rural areas (deprivation
of various kinds, low income and employment opportunities, lack
of affordable housing, poor access to services etc). The causes
of these problems are not particularly linked to the characteristics
of rural areas, such as land use or low population density, though
conditions there can add a particular dimension (income deprivation
can be a different experience if suffered in an otherwise prosperous
countryside from that in an urban area where it is a shared feature
of certain communities). At a general level, economic conditions
in rural areas are likely to reflect those in the country as a
whole due to the close links and interdependency between all parts
of the economy, conditions that in practice are outside the influence
of any rural development policy.
19. Meeting the full range of economic,
social and environmental needs in rural areas could only be tackled
by Rural Development Programmes if the coverage of their underpinning
Regulations were to be widened considerably. But the generic nature
of the needs raises the issue of whether policy interventions
that are unique to rural areas are appropriate (either because
of their causes or because of delivery mechanism). Rather, they
might be better tackled by general policies (on transport, education,
health, housing, alleviation of poverty, taxation etc.) that may
contain special provisions for any peculiarities of rural situations.
This would leave Rural Development Programmes to concentrate largely
on environmental issues, with responsibility for economic and
social issues only where specifically rural dimensions were encountered,
though these might well stretch beyond agriculture and forestry.
June 2007
1 See review in: Hill, B, (2000) Farm Incomes, Wealth
and Agricultural Policy, 3rd Edition. Aldershot; Avebury.
ISBN 0-7546-1132-9. 375 pp. Back
2
Court of Auditors (2004) Special Report on the measurement of
farm incomes by the Commission Article 33(1)(b) of the EC Treaty,
together with the Commission's replies. 2004/C 45/01). Back
3
Agra CEAS Consulting (2007) Feasibility Study on the Implementation
of Income of Agricultural Households Sector (IAHS) Statistics,
Eurostat, The Commission, Luxembourg. Back
4
OECD (2002) The incidence and transfer efficiency of farm support
measures. AGR/CA/APM(2001)24/FINAL. Paris. OECD (2003) Farm
Household Income: Issues and Policy Responses. Organisation
for Economic Co-operation and Development, Paris. Back
5
Hill, B and Blandford, D, (2006). Policy Reform and Adjustment
in the Agricultural Sectors of Developed Countries. CAB Publishing,
Wallingford. ISBN 1845930339. Back
6
Hill, B, (2002) with Victoria Schoen, Alan Rogers, Angela Edwards
and Kate Murray, Baseline Study for the ERDP Mid-term Evaluation.
ICON Consultants for the Department for Environment, Food and
Rural Affairs, London. 97 pp plus Annexes. (Publiished on Defra
website).Agra CEAS Consultants (2003) The Mid-term Evaluation
of the Wales Rural Development Plan. Main volume (151 pp)
and 12 separate appendices. Welsh Assembly Government (available
from the www.wales.gov.uk website).Agra CEAS Consultants (2006)
Ex-Ante Evaluation of the Wales 2007-13 Rural Development Plan.
Welsh Assembly Government, Cardiff. Back
7
European Commission (2006) Rural Development in the European
Union: Statistical and Economic Information-Report 2006. DG-Agri,
Brussels. Back
8
Hill, B, et al (2005) The New Rural Economy-Change,
Dynamism and Government Policy. Institute of Economic Affairs,
London. Evidence is taken also from Countryside Agency (2004)
The State of the Countryside 2004. Cheltenham. Back
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