Chapter 7: The future shape of the Common Agricultural Policy
263.The CAP undergoes periodic major reforms and adjustments; it is expected to undergo a mid-term review in 2017 and will be revised again for the period after 2020. Our recommendations are intended to feed into these revisions, though we have also borne in mind any future UK policy landscape, should the UK decide to leave the EU in the forthcoming referendum.
Long term objectives
264.The stated official objectives of the CAP remain as they first appeared in the Treaty of Rome in 1957, though the way they have been interpreted has evolved. Box 1 shows how the language used to describe the Policy has changed over the decades:
Box 2: The Objectives of the Common Agricultural Policy
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1.Treaty of Rome (1957) Article 39 of the Treaty of Rome, the wording of which has been carried forward into the Treaty on the Functioning of the European Union (Lisbon, 2007), states that the aims of the CAP are:
The CAP’s original objectives were reformulated in Agenda 2000 by the European Council (the Heads of State and/or government of the Member States, its President and the President of the Commission) as follows:
3.Political settlement of 2013 The Council and the European Parliament, agreed the CAP’s long-term objectives for the period 2014–2020 as:
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Sources: Summarised from Agenda 2000: For a stronger and wider Union, COM (97) 2000 final, Commission of the European Communities and European Commission, ‘Agricultural Policy Perspectives Brief No. 5, December 2013’: http://ec.europa.eu/agriculture/policy-perspectives/policy-briefs/05_en.pdf [accessed 5 May 2016]
265.Professor Morgan narrated these changes:
“The common agricultural policy, as it is now, is a very different animal from the one that I grew up with in the 1970s and 1980s, when we did have butter mountains and wine lakes, and 84% of the [EU] budget went to agriculture and 50% of that went to milk, because of the way that the market was operated. That was about price intervention; that was about subsidies for prices; that was all about market intervention. The current CAP is very different. It is not about market intervention; it is about support for income. It is not about support for a product; it is support for income. It is a very different thing. It is designed to maintain the wider aspects of agriculture, the stewardship of the countryside, et cetera. It is targeting something quite different from the original ideal of the CAP, which was about supporting price. It is a different common agricultural policy, even though its name has never changed. It has evolved.”211
Support for public goods
266.Many witnesses argued that the concept of public goods should be set as the primary objective of any reformed CAP. Whether it be increased food security, environmental sustainability or climate change mitigation, the CAP should be holistic and should not simply encourage food production at any cost. DG AGRI highlighted the relatively recent shift towards fostering a wider array of public goods:
“The objective of the current system of Direct Payments goes far beyond a pure income support policy tool … [The objective has made] it possible for the legislator to introduce other important policy objectives (such as the provisions of public goods) as a pre-condition in order to receive support. Decoupled from production decisions, these payments create an incentive for agriculture to provide a combination both of private and public goods, with the latter further enhanced in the more recent reform by making 30% of the payment conditional on greening practices.”212
267.The introduction of greening marked a significant step away from unconditional support under Pillar 1, but there is scope for much more. DG AGRI went on to tell us that the Policy must always be able to compensate farmers for the public goods they provide, which may not be recognised by the market:
“Farmers produce public goods, but they also produce private goods. Instead of pitting one against the other, we want to bring those together in a complementary way. In this design, even for the future, they need to have some cushion in the overall income of farmers that would compensate them for what the market does not compensate. That remains important. One would have to examine whether the manner in which we distribute payments in the reference we have, which is land, is the most accurate one. In my view, that is where the discussion in the future will have to focus.”213
268.It added that decoupled Direct Payments had, by guaranteeing an EU wide minimum level of basic income support, also played a major role in maintaining agricultural activity throughout the EU territory, avoiding negative social consequences in rural areas.214 It told us that combining the provision of public and private goods without one overriding the other would be challenging:
“That is where volatility and economic viability become important. Before everything else, agriculture is an economic sector, and if it is not economically viable it will not be viable from an environmental or social point of view.”215
269.Historically, market price support under the CAP maintained prices above market levels for many products. This generated costs to EU consumers, while providing relative price stability for farmers. However, the intensity of market intervention has declined significantly as a result of CAP reform since the early 1990s, leaving EU markets more open to respond to fluctuations of supply and demand. The move from general price support to more targeted support can be used to enable the provision of public goods. A return to a system of price support and intervention to provide a floor price would signal a step back.216
270.The CAP’s objectives go beyond the production of agricultural goods. They include the provision of public goods, such as land management and maintenance of ecosystem services, as well as the mitigation of adverse social impacts in rural economies.
271.Given that the agricultural sector is often expected to provide public goods, there is a case for financial support in certain circumstances. However, policy should display much more explicit links between the expected outcomes and the use of public funds.
272.Another important role for direct support is in the case of market failure. Professor McCorriston agreed that this could provide a rationale for intervening:
“One of the important issues about whether it is the private or public sector, which is a general principle of policy, is whether there is a market failure. Can the private sector provide enough on its own to resolve the issues of variability? If the answer is no, then there is a potential role for an agricultural policy or CAP in some form to deal with that.”217
273.There is a case for public intervention where there is market disruption caused by events beyond the control of the industry, such as the recent Russian ban on imports from the EU.
274.While DG AGRI’s evidence makes it clear that agriculture and environmental policy are strongly interlinked, they are currently often dealt with in separate frameworks, which may jeopardise the achievement of the objectives of each policy. The Minister noted that the UK was developing separate 25 year plans for food and farming on the one hand and the environment on the other. He said that the agriculture plan would touch on environmental issues, but that the environment plan “the right place to deal with all the environmental issues, including looking at things such as soil, climate change, water resources and everything else”218 We are concerned that this separation of the respective policy areas does not demonstrate awareness of the interconnectedness of agriculture and the environment, or of the value of natural capital.
275.Given the significant synergies between agricultural and environmental policies, they should not be treated as separate policy areas. We urge the UK Government to demonstrate that their 25 year plan for food and farming and their 25 year plan for the environment are consistent with and support one another.
Structural change
276.The previous round of CAP reform sought to move some public support from Direct Payments and Pillar 1 towards Pillar 2. This movement of support from Pillar 1 to Pillar 2 may continue in the next round of reforms and more funding may be dedicated to environmental services and land management. Given that Pillar 2 is co-financed by the Member States, this may not be straightforward.
277.DG AGRI presented this as a process of transition:
“I think we should realise that the old distinction between Pillar 1 and Pillar 2 is becoming less and less relevant. This distinction was driven by the fact that in Pillar 2 we had—and still have—multiannual budgeting based on programming, and on Pillar 1 it is annual budgeting and there is no programming; it is all financed by the EU. Now we have elements of programming and co-financing in the First Pillar, but the most important thing that brings these two together is land management.”219
278.The Commission underlined that land management was at the heart of their vision for the future of the CAP:
“It is important to start realising that for the same piece of land—one hectare of land, for example—you can see differently from a market point of view the quantities you produce and what impact it has on prices; from a direct payments point of view whether the CAP will support it and how much; from an agri-environmental point of view what type of additional measures you have; from a control point of view how you guarantee this is accurately accounted for; but it is still one hectare of land. The crucial question is what type of land, what are the soil characteristics, what do they imply regarding future environmental challenges, be it climate, soil erosion, water use, or what have you, and how all the measures that we have—and they are and should continue to be more than one—would act in a complementary manner.”220
279.The Commission’s approach is entirely consistent with our view that the provision of public goods must be the overall driving force behind the next round of CAP reform. Indeed, as the distinction between Pillar 1 and Pillar 2 disappears, there is an argument for abolishing the distinction altogether and focusing funds on specific public goods.
280.Such a move would allow for EU-wide risks to be more effectively managed at EU level and to be addressed and financed from a single source of funding. As we noted earlier in Chapter 3, DG AGRI classifies these as market risks or broader environmental risks. 221
281.We recommend that the European Commission consider a restructuring of the Common Agricultural Policy primarily to support the provision of public goods.
282.Exposure to market signals is crucial for the self-regulation of agricultural production. Forms of support that remove market signals may artificially keep inefficient or unproductive farmers in business while preventing younger and more skilled farmers from entering the sector and expanding. As has been noted, we heard that farmers in historically less supported sectors were generally more business-oriented than those in more supported sectors. The removal of support may also have wider implications for the rural economy. The debate surrounding the role of Direct Payments is discussed in Chapter 3.
283.Market signals are key to encouraging farmers to take the right course of action to increase resilience. This will need to be reflected in any future policy to ensure that these signals are not removed.