CAP and future challenges

1
CAP and future challenges

• Mark Brady, Sören Höjgard, Eva Kaspersson and Ewa
  Rabinowicz
• Swedish University of Agricultural Sciences

2
Outline of the presentation

• Introduction
• CAP and European integration
• Implications of Single Payment Scheme (SPS)
• Assessment of Pillar 2 programmes
• Efficiency and distribution
• Obsolete objectives of the CAP
• New objectives for the CAP
• Short term strategy
• Concluding remarks

3
The CAP and European integration

• Decisive component in the past but what about the
  future?
• Would the present CAP pass the subsidiarity test?
• Is the CAP spending a reasonable use of scarce
  common resources in view of global crises?
• Principle of subsidarity lowest level of
  government at which the policy can be efficiently
  delivered.
• Fiscal federalism European public good,
  otherwise underprovided with value added at
  European level.

4
Implications of the Single Payments Scheme

• The single most important element of the CAP, 75
  of CAP budget
• EU research project IDEMA12 case-study regions,
  spatial agent-based modelling
• SPS has limited potential for supporting farm
  income.
• If support was eliminated, land values would
  fall, structural change speed up and incomes from
  other sources grow
• In marginal regions SPS contributes to
• more biodiversity due to GAEC obligation
• higher employment by slowing down structural
  change
• There are no cross-border effects
• Contrary to what is often argued, common
  financing is not needed to level the playing
  fields because land is immobile

5
Pillar 2 axes 1) competitiveness, 2) environment
and 3) wider rural development

• Competitiveness investment support, setting up
  young farmers, training, early retirement, etc.
• These measures have the potential to improve
  efficiency but only to the extent that market
  failures are present which is most likely in the
  NMS
• There is considerable evidence of displacement
  effects.
• Cross border effects and European public goods
  are, by and large, absent.
• The main impact seems to be transfer of income

6
Pillar 2 (cont) Improving environment and
countryside

• Compensate farmers who adopt environmentally
  friendly practices
• Promote public goods such as biodiversity
  ecosystem services, landscape and culture.
• - Reduce pollution of water, atmosphere, GHG
• Efficiency requires targeting gt national design
• Poor performance payments often general and not
  related to effects (income support?)

7
Assesment of the second Pillar, cont

• Wider rural development development of villages,
  diversification, encouragement of tourism
• - Not sufficient to address marginalisation of
  lagging behind regions
• - Focus more on symptoms than on underlying
  causes remoteness, low productivity, lack of
  qualified labor and services.
• - Cross-border effects are absent and the prime
  motivation is cohesion.
• - Most appropriate in the NMS but applied
  everywhere

8
Efficiency and distribution

• To summarize CAP spending has weak rationale in
  term of externalities and public goods.
• Co-financing applies for second Pillar measures
  where there are elements of European public goods
  but full financing is provided for direct
  payments with no public goods.
• The CAP spending is primarily distributive.
• The territorial distribution (according to
  Shucksmith et al (2005)) both Pillar 1 and
  Pillar 2 support were favouring the more
  economically viable and growing areas of the EU.
• Distribution according to size 2 of recipients,
  receiving more that 50000 euro in EU15, received
  30, (2005, EU Commission)

9
Objectives that should be abolished consumer
protection and farm income

• Sheltering European consumers from high prices
  would have very negative impact on global
  poverty.
• Due to capitalisation of the support in asset
  values farm income objective is not attainable in
  the long run.
• In Sweden total income of farm households is more
  or less independent of farm size
• If farm income objective is retained it must be
  made coherent with the social policy. Since bulk
  of the income support is now paid as an
  individual income transfer, this should be
  subject to an individual means testing

10
Retained objectives competiveness

• The competitive pressures on agriculture have
  increased
• Added value at the European encouragement of
  innovations and technical change.
• Policies such as investment subsidies should be
  limited to NMS for a transitional period.
• Investment support should be transformed to
  innovation aid

11
Stability

• Previously high cost for market interventions
• Focus on providing a safety net
• Market solutions to risk management doo exist
• May not be optimal
• EU does not have better information than private
  entrepreneurs or MS
• Restrict involvement to legal framework and
  provision of emergency aid

12
Food security

• Food and security in the EU are joint-products
  and not undersupplied at present
• Global food security stimulate growth of
  agricultural production in Africa more
  appropriate than support to farmers in the EU
• Future abundance of food should not be taken for
  granted. RD spending is necessary to halt, the
  decline in productivity growth.

13
Environmental protection

• Biodiversity ecosytem services are cross-border
  public goods which implies need for a common
  policy
• Need for targeting gt national design
• Free-rider problem gt coordinate financing
• Strategic behaviour gt co-financing
• Cloaked protectionism gt common framework
• Existing agri-enviro schemes must be improved,
  e.g. conservation trusts, auctions, habitat
  banking, greater regionalization, etc.

14
Climate change

• From the climate perspective, agriculture
  constitutes both a problem (9 of emission) and a
  potential solution (carbon sequestration and
  production of green energy).
• Climate change calls for new research for
  mitigation and adaptation.
• Efficient mitigation policies require that
  marginal abatement costs are equalised across all
  emission sources. Support to development of new
  technology should not be confined to agriculture.

15
Cohesion and wider rural development

• Poverty is a reality of many rural regions of the
  EU, especially among the NMS
• The CAP should focus on poverty of rural regions
  (compared with other areas) and not on poverty in
  rural areas (poorest strata compared with other
  inhabitants)
• Territorial approach and general policies rather
  than project support.
• Preference needs to be given to lagging behind
  rural areas and NMS.

16
CAP summary of the long term view

• The objectives of the new CAP should include
  protection of biodiversity, mitigation of climate
  change, contribution to competitiveness and
  contribution to cohesion, whereas the objective
  to support farm incomes and to assure reasonable
  prices for consumers should be abandoned.
• SFP should be phased out from the CAP. These
  payments cannot be justified as income support or
  compensation for higher costs, or for food
  security
• The future size of the present second Pillar
  should be based on the merits of the policies in
  question.

17
Continued reform in small steps

• Right direction but slow change.
• What shorter term changes would be consistent
  with the desired long term outcome?
• Considerably lower uniform payments rather than
  modulation
• Capping is not an efficient way to address
  inequality
• Reasonable to keep cross compliance but not to
  increase number of components
• Merging Pillar 1 and 2 would undermine the
  credibility of phasing out pillar 1

18
Final comments

• The budget allocations need to respond to respond
  to emerging global crises, especially the climate
  change, which is arguably the greatest challenge
  encountered by the mankind.
• Science and technology are the keys to such a
  response since the present availability of
  low-carbon-technologies on a large scale is
  limited.
• Less needs to be spent on agriculture in the
  future budget and the remaining spending should
  concentrate on preservation of biodiversity and
  mitigation/adaptation to climate change.