Reform of EU Farm Subsidies

The European Commission has publicly launched the process of reforming the EU’s Common Agriculture, or “CAP”, as it is often known, which disburses subsidies to farmers in the EU.

At EUR 55 billion, CAP is by far the largest item in the EU’s budget. One of the main aspects of reform will be to adjust distribution of the subsidies, particularly to channel more funds to Eastern European countries which had been receiving less than their Western counterparts.

The strategy of the proposed reform is to focus on three mail aspects: direct subsidies, market management measures, and rural development.

The goal, according to the Commission, is for CAP to become progressively more dynamic, more competitive, more efficient, and more environmentally friendly.

EU Issue Tracker outlines here the key aspects of the proposed EU’s agricultural reform.

Current Issues with the Common Agriculture Policy

Food Security

The rising World population coupled with a change in eating habits will lead to an increase in the demand for agricultural products of 50% between now and 2030 and 70% by 2050. In order to face the rising demand, the EU must assure that a wide choice of quality products are offered in sufficient quantities while respecting very high health and environment standards.

Environment and Climate Change

Agriculture and forestry can play a key role in mitigating the negative effects of greenhouse gases and contribute to its reduction. In accordance, agriculture can offer specific responses for combating climate change and biodiversity loss. For instance, farmers can adapt their practices in view of the new environmental challenges presented by global warming.

Territorial Balance

Agriculture is the economic driver in the majority of rural areas and thus it is vital to maintain a competitive and dynamic farming sector in these areas. It is of crucial importance to ensure that local employment in the agro-food sector remains sufficiently attractive since well functioning rural communities can deliver multiple economic, social, environmental and territorial benefits.

Why Reform?

In order to respond to the future challenges the CAP has to focus on green growth in order to allow for economic growth while preventing harm to the environment.

Smart Growth

Technological developments and innovation can increase resource efficiency and improve competitiveness with the result of developing high quality products. Progressively, the CAP should focus on the employment of green technologies, the investment in training and the provision of incentives for social innovation in rural areas.

Sustainable Growth

A sustainable growth can be achieved by for instance providing environmental public goods, addressing biodiversity loss, promoting renewable energies, increasing resource efficiency through technological development and using results of research to reduce emissions.

"Inclusive Growth"

A sustainable agriculture in the whole of the EU can be maintained by exploring the economic potential of rural areas, developing markets and jobs, accompanying the restructuring of agriculture and supporting farmers.

Objectives of the Future CAP

Viable Food Production

In the context of a growing global demand and greater market volatility, the provision of safe and sufficient food supplies is essential in order to improve the competitiveness of the agricultural sector and to contribute to food security.

Sustainable Management of Natural Resources and Climate Action

In order to provide for environmental public goods and foster green growth, farmers often have to put environmental considerations ahead of economic considerations. These costs however are generally not rewarded by the market.

Balanced Territorial Development

With a view of achieving a balanced EU agricultural sector the rural economy has to be supported in order to make use of its full potential. Agriculture remains foremost an economic and social driving force in rural areas and in accordance an important factor in maintaining a living countryside.

The Main Broad Lines of Reform

In its policy paper the Commission presents changes to the present CAP instruments. These should allow for a more efficient response to the abovementioned objectives set out by the Commission for the EU’s agricultural sector.

Direct Payments

The system of direct payments is reviewed in order to allow for a fairer and more equitable distribution of funds. The distribution is based on economic and environmental criteria which should make the redistribution more transparent and understandable to the taxpayer. The approach presented in the Communication is based on a number of principles which are outlined below.

A basic income support payment provides a uniform level of obligatory support to all farmers in a Member State or region, which would be based on new requirements and capped at certain level through the introduction of an upper ceiling.

Direct payments include a mandatory ‘greening’ component in order to improve the environmental performance and ecological competitiveness of the CAP. This annual additional payment would reward actions which go beyond the basic cross-compliance rules, e.g. permanent pasture, green cover, crop rotation and ecological set-aside.

An additional income is provided to farmers in order to promote the sustainable development of agriculture in areas with specific natural constraints. This support would be defined at EU level and complement the amounts paid via rural development measures.

A limited voluntary ‘coupled’ payment option is provided to take account of specific problems in certain regions where particularly sensitive types of farming are considered of vital importance for economic and/or social reasons.

A simple and specific support scheme is set up for small farmers in order to improve the competitiveness and the contribution of small farms to the vitality of rural areas.

Finally, cross compliance rules are simplified, providing farmers and administrations with a simpler and more comprehensive framework of rules. The inclusion of the Water Framework Directive within the concept of cross compliance will be discussed in the future.

Market Measures

The market management instruments of the CAP will undergo some changes in comparison to the ones that have been used so far. In essence, current market tools, such as the public intervention period, the use of disturbance clauses and private storage aid, need to be streamlined and simplified.

A possible introduction of new elements is envisaged with the aim of improving the functioning of the food supply chain. Market measures were the traditional tools of the CAP which have been reduced by subsequent reforms which focused on enhancing the market orientation of the EU’s agricultural policy.

Rural Development

The rural development policy has led to the economic, environmental and social sustainability of the EU’s agricultural sector. In the future, environmental, climate change and innovation considerations should be the guiding themes steering the policy.

In addition to the instruments that are already in place a risk management toolkit is introduced in the future rural development policy. The toolkit would be made available to the Member States in order to help deal more effectively with income uncertainties and market volatility.

Broad Policy Options

The Commission presents three options for the reform of the CAP which should continue to be structured in the current 2 pillar-system. The first pillar covers direct payments and market measures where rules are clearly defined at EU level and support farmers on an annual basis. The second pillar comprises multi-annual rural development measures, where the framework is set at EU level but the final choice of schemes is left to Member States or regions under joint management which may adapt them to the local realities of each Member State.

Adjusting most pressing shortcomings in the CAP through gradual changes

The first option would introduce gradual changes to the current policy framework while leaving the current direct payment system unchanged. Accordingly, it would build upon the well-functioning aspects of the CAP and allow for adjustments to be made where necessary, e.g. as regards the equitable distribution of direct payments between Member States.

Making the CAP greener, fairer, more efficient and more effective

The second option presented would also involve a more equal distribution of funds between the Member States. It would envisage a mandatory additional aid linked to specific ‘green’ goals in order for the support to be more focused on environmental and climate objectives. A new scheme for small farms would also be set up to contribute to the strengthening of rural areas.

Phasing out direct payments and focusing on environmental change objectives

The third proposed option would be a more far reaching reform of the CAP since it would see a complete phase-out of direct payments in favour of environmental and climate change objectives. Most market measures would be gradually abolished and the rural development’s focus would also shift to environmental aspects.

Next Steps

The Communication will now be discussed in the Council and European Parliament as well as in the European Economic and Social Committee and the Committee of the Regions. Stakeholders will also be invited to submit their views on the presented options and contribute to the impact assessment. On the basis of this outcome, the Commission will prepare the legislative proposals by summer 2011. The reformed CAP should enter into force on 1 January 2014.