Summary
The EC has tabled proposals for the establishment of a new delivery model for the CAP, which devolves design of Strategic Plans to EU member states on the basis of a common EU policy framework and common EU tool box. EU member states are to have more flexibility in how they combine tools and there is to be a greater focus on risk management. The structure of financing remains unchanged as does the overall objectives of the CAP. There are concerns the granting of greater flexibility could lead to increased use of trade policy tools which are de facto trade distorting. Concerns also arise over the future use of the centralised crisis reserve fund particularly in the dairy sector, where EU intervention buying and storage have contributed to a sustained depression of global skimmed milk powder prices. While 9 specific objectives for the CAP are set out, no reference is included to the EU policy objective of ensuring the coherence of its agricultural policy interventions with its commitments to promoting policy coherence for development.
At the beginning of June 2018 the EC issued a range of documents setting out both proposals for amendment of CAP regulations and the background to the proposed amendments. The main focus of the proposed reforms is the establishment of a new delivery model with a view to simplifying and reducing the costs of CAP implementation. The proposals aim to set out EU wide ‘basic policy parameters (objectives of the CAP, broad types of intervention, basic requirements)’, with Member States taking on ‘greater responsibility’ and being ‘more accountable as to how they meet the objectives and achieve agreed targets’. It is maintained this greater subsidiarity will allow better accommodation of local conditions and needs (1).
Each member state will be expected to draw up a Strategic Plan for the deployment of support measures within common framework established at the EU level and using instruments selected from a common ‘tool box’. The implementation of the CAP will then be assessed against the performance targets set out by individual member states in their Strategic Plans. Each Strategic Plan however will need to be assessed by the EC for conformity with the overall EU wide CAP framework (1).
The objectives of the CAP will remain largely unchanged, being guided by Article 39 of the Treaty on the Functioning of the European Union (TFEU) namely:
- ‘to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour’;
- ‘to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture’;
- ‘to stabilise markets’;
- ‘to assure the availability of supplies’;
- ‘to ensure that supplies reach consumers at reasonable prices’ (2).
Within this broad treaty framework 9 specific objectives are stipulated, namely to:
(a) ‘support viable farm income and resilience across the EU territory to enhance food
security;
(b) enhance market orientation and increase competitiveness including greater focus on
research, technology and digitalisation;
(c) improve farmers’ position in the value chain;
(d) contribute to climate change mitigation and adaptation, as well as sustainable energy;
(e) foster sustainable development and efficient management of natural resources such as
water, soil and air;
(f) contribute to the protection of biodiversity, enhance ecosystem services and preserve
habitats and landscapes;
(g) attract young farmers and facilitate business development in rural areas;
(h) promote employment, growth, social inclusion and local development in rural areas,
including bio-economy and sustainable forestry;
(i) improve the response of EU agriculture to societal demands on food and health, including
safe, nutritious and sustainable food, as well as animal welfare’ (2).
The existing structure of the European Agricultural Guarantee Fund (EAGF) and European Agricultural Fund for Rural Development EAFRD will be maintained, with annual measures within a multi-annual approach. However the implementation of measure with increased ‘subsidiarity’ will allow member states to ‘tailor instruments to local needs’ (1). For the period from 2021 to 2027 some €286.2 billion will be allocated to the EAGF and €78.8 billion to the EAFRD, with an additional €10 billion being allocated to support research and innovation in food, agriculture and rural development and the bio-economy.
The EC highlights how in the face of greater transmission of global price volatility to EU markets there will be a stronger focus on ‘risk management’ and more effectively managing crisis situations arising from the increased exposure of EU markets to global market forces (1).
Importance is also being attached to the better targeting of support to small and medium sized farms as a way of keeping jobs in rural areas. However this focus sits uncomfortably with wider EU efforts to promote the modernisation and increased competitiveness of EU agriculture and the wider agro-food sector which, commonly hinges around mechanisation (1).
In summary key elements of the June 2018 CAP reform proposals include:
- a cut in the CAP budget (-5%);
- convergence of direct payment levels;
- capping and degressivity of CAP direct aid payments;
- increased national co-financing for rural development programmes;
- greater ambition on environmental and climate change objectives;
- the establishment of a new centralised crisis reserve, with at least €400 million each year, with unutilised funds being carried-over and the overall envelop being refilled if required;
- making access to crisis reserve funding conditional on the adoption of risk management strategies at the national level;
- enhanced flexibility on the use of crisis management measures;
- greater flexibility in transferring funds between the EAGF and the EAFRD (up to 15% of respective direct aid payments, with a higher % being allowed in pursuit of specific objectives linked to climate change, environmental objectives and young farmer development);
- a new performance and evaluation framework, based on nationally determined Strategic Plans which set clear objectives against which performance can be assessed (1).
| Comment and Analysis It is noteworthy that in the specific objectives listed in regulation 392 no reference is made to the EU’s commitment to ensuring policy coherence for development. This can be seen as something of an oversight given the EC’s acknowledgement that its role as a major exporter and a major importer of agro-food products means the CAP has ‘an impact on food systems outside the EU’ (1). An important aspect of the reform proposals is the establishment of a new delivery model which gives greater powers to member states in deciding on the deployment of CAP financial support instruments. This is likely to see an increase in the use in some EU member states of voluntary coupled support, most notably in the Visegrad group which has called for increased flexibilities and resources under the voluntary coupled support instrument. However in the run up to the January 1st 2018 introduction of more flexibility in the deployment of voluntary coupled support the EC had warned this form of support was shortly likely to be classified as ‘amber box’ support – that support which the WTO deems to be production and trade distorting (see companion epamonitoring.net article ‘The June 2018 CAP Reform: Part 4 CAP and Policy Coherence for Development’, 13 September 2018). The scope for increased use of voluntary coupled support in the dairy and sugar sectors is a particular area of concern given growing EU exports of milk powders and most recently refined sugar to ACP countries (particularly but not solely in Africa). These VCS payments undermine a fundamental objective of the earlier CAP reforms, namely to shift the geographical distribution of production of specific products in the EU to areas best suited to competitive production of that specific crop, with production in less favoured areas of the crop concerned being allowed to decline, with production in these regions being encouraged to shift to other products where the region concerned has a competitive advantage. In both the dairy and sugar sectors the maintenance of coupled payments in the context of the removal of production quotas has seen production expand in the most favoured areas but with no corresponding reduction in production in less favoured areas. As a consequence EU production of both milk and sugar has expanded at a higher rate than would otherwise have been the case within the overall conceptual framework for CAP reforms. Concerns also arise over the future use of the new centralised crisis reserve fund in the context of the enhanced flexibility in the use of such market management measures. In the dairy sector the use of this tool, alongside the payment of both de-coupled and coupled direct aid payments, has served to generate continued high levels of EU stocks of skimmed milk powder (SMP). These stocks continue to overhang global milk powder markets in ways which depress the process of SMP price recovery. Indeed, in light of the overall level of accumulated EU SMP stocks, OECD/FAO analysis has gone so far as to suggest there is little prospect of any significant recovery in global SMP prices through to 2027 (see epamonitoring.net companion article ‘Continued Dominant Role for EU Dairy Exports Forecast’, 6 September 2018). This sustained depression of global SMP prices has seriously constrained the economic space for the development of local milk-to-dairy supply chains in ACP countries (most notably in Africa), as remarkably cheap milk powders substitute for local milk in the production of a range of dairy products, now being manufactured to meet rapidly rising African demand for dairy products. |
Sources:
(1) EC, ‘Proposal for a regulation of the European Parliament and of the Council REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) No 1308/2013 establishing a common organisation of the markets in agricultural products’, COM(2018) 394 final/2’, 1 June 2018
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018PC0394R(01)&from=EN
(2) EC, ‘Proposal for a regulation of the European parliament and of the Council establishing rules on support for strategic plans to be drawn up by Member States under the Common agricultural policy (CAP Strategic Plans) and financed by the European Agricultural Guarantee Fund (EAGF) and by the European Agricultural Fund for Rural Development (EAFRD)…’ COM (2018)392 final, 1 June 2018
https://eur-lex.europa.eu/resource.html?uri=cellar:aa85fa9a-65a0-11e8-ab9c-01aa75ed71a1.0003.02/DOC_1&format=PDF