EU Officials Begin Testing Waters on Post-2020 Agricultural Policy

9 March 2017

EU officials have begun scoping out ideas and priorities for the next phase of the bloc’s Common Agricultural Policy (CAP), which is due to take effect from 2021 onward.

The CAP governs the bloc’s support for its 22 million agri-workers, with a current annual budget of €59 billion according to EU figures. The last set of reforms to the high-profile scheme were agreed in 2013 for the 2014-2020 period. (See Bridges Weekly, 27 June 2013)

While the next phase of the CAP is years away, talks for each iteration of the policy are famously complex, often requiring round-the-clock negotiations as member states, the Commission, and EU parliamentarians haggle over details ranging from whether and how to cap payments to larger farms or how much to link state aid to actual agricultural production.

Council talks risk, environment, funding

The future set-up of the EU’s domestic agricultural support from the end of this decade was one of the key items on the agenda when agriculture ministers under the EU Council met in Brussels, Belgium, on Monday 6 March.

“The EU farming sector has big challenges ahead. As politicians we have an opportunity to set a vision for the future,” said Roderick Galdes, Maltese Parliamentary Secretary for Agriculture and president of the Council.

“We should constantly improve our policies so that EU agriculture and rural areas can continue to thrive and generate growth, employment and welfare,” the Maltese official added.

According to a background brief issued before the event, ministers were expected to respond in Brussels with their views on how best to address CAP-related “priorities,” along with their thoughts on potentially changing the current “balance” of the farm policy’s financing structure.

Ministers reportedly called to make the next version of the scheme far simpler, along with raising various issues involving risk and future sustainability of the farm sector, including the need to address environmental problems and the looming risk of climate change.

Farm ministers generally expressed an interest in keeping the “market orientation” of the CAP – in other words, keeping interventions into the market limited so as to avoid production and trade distortions – along with ensuring that the bloc’s farmers can be better prepared for “market crises.”

Although in past decades the CAP was heavily criticised for generating unwanted surplus production and waste – such as the “butter mountains” and “wine lakes” of the 1980s – successive reforms since then have substantially reduced the extent to which policy directives dictate farm output.

The CAP’s market orientation has come into focus in recent years, particularly in light of the crisis reported by EU dairy and livestock farmers that led to the Commission providing hundreds of millions of euros in aid in 2015. (See Bridges Weekly, 17 September 2015)

Funding the “pillars”

Funding proved to be a shared concern among most EU ministers, according to Council conclusions released on Monday evening. Along with calling for “adequate funding,” many participants reportedly confirmed that they wish to keep using the “pillar” system of the CAP going forward.

Under the EU’s agricultural policy, the first of these pillars involves production support, while the second is for rural development. The 2014-2020 CAP tried to better integrate the two pillars, including by moving to “green” direct payments to farmers in an effort to ensure European agriculture’s environmental sustainability. (See Bridges Weekly, 27 June 2013)

Although the cost and funding arrangements for the CAP have always been debated by ministers, farm groups, environmentalists, and other actors, the post-2020 CAP is expected to be the first to apply after the UK leaves the EU, thereby shrinking the overall financial contributions that are available for financing the bloc’s agricultural outlays.

The Council’s conclusions from this week’s meeting hinted that the two pillars will likely spark debate in future talks, especially over the question of how to balance the resources allocated to them. The document also noted an interest by many member states to have “real flexibility” in how they treat these two areas at the national level.

“Some delegations were in favour of putting more emphasis on rural development in the future in order to invest in rural viability and vitality, [while] others warned against a reduction of direct support to farmers,” the conclusions read.

Another area that drew ministers’ interest was “voluntary coupled support” – in other words, direct payments that EU member states are allowed to make to farmers for select goods that are struggling, so long as these are also used to address economic, social, or environmental concerns.

These are currently capped at eight percent of a member state’s national ceiling for direct payments, plus an additional two percent if involving a protein crop, with the possibility of going higher under select circumstances.

A dozen countries urged the EU’s executive arm to either keep these at current levels or allow them to be greater. Coupled support has long drawn scrutiny in trade circles over the concern that linking such payments to farm production has the effect of distorting trade.

“The significant support the proposal received from 12 member states indicates that even holding the line in preventing a return to aspects of the old CAP may be increasingly problematic in the months ahead,” wrote Alan Matthews, emeritus professor of European agricultural policy at Trinity College Dublin, in a blog post on the subject.

Hogan highlights market volatility

EU Agriculture Commissioner Phil Hogan has similarly been making the case for better addressing issues such as market volatility via the next CAP in recent weeks, holding meetings with French Prime Minister Bernard Cazeneuve last week and speaking days earlier in Geneva on making agricultural trade more sustainable.

“I have listened carefully to the calls from farmers in the arable crops sector of the need to monitor the market more closely, having regard to the importance of the sector for EU agriculture, not least here in France, and the forthcoming end of the quota regime in the sugar sector,” he said on 2 March in Paris at the Salon de l’Agriculture after meeting with the French premier.

The EU’s executive arm has opened a public consultation on “modernising and simplifying” the CAP, which continues through the beginning of May. The results will then be released publicly this summer.

A statement issued by EU farm group Copa and Cogeca on Monday said that a “strong, common, adequately financed” CAP is needed in the future.

At the same time, over 150 civil society organisations issued a joint statement calling for the EU’s future farm policy to take into account social and environmental concerns, including the impact on livelihoods in developing countries.

The Commission has explained that the need to conduct another CAP upgrade just a few years after the last one was the result of two factors: that the EU’s agricultural policy needs to respond to unexpectedly swift changes in areas ranging from trade to climate and environment, and that the bloc must respond to the frustrations expressed by all stakeholders in the complexity of the last set of reforms.

At the same time, the European Parliament’s Committee on Agriculture and Rural Development is also examining a proposed “omnibus regulation” which would modify aspects of the current CAP, and which could be applied from as soon as the start of 2018 if agreement is reached among the relevant European institutions beforehand.

Among other things, this contemplates a new “risk management” instrument which would allow support to be provided to agricultural insurance – a model for agricultural domestic support which now forms the centrepiece of US farm subsidy schemes.

Matthews told Bridges that European Commission proposals for this instrument to cover losses greater than 20 percent would likely mean that the support would have to be notified as trade-distorting “amber box” payments under WTO rules. The EU, like other members of the global trade body, has to respect an upper limit on amber box support at the WTO.

Climate change risk, shifting trade scene

In the four years since the last version of the CAP was approved, the 28-nation bloc has struggled against concerns such as the growing threat of a changing climate, fuelling a demand for the bloc to adapt its farm policy approaches accordingly.

Meanwhile, the shift from negotiating trade deals between small groups – as opposed to doing so on a global scale – was another key development from recent years that the EU’s executive arm flagged in describing the new agricultural policy landscape.

This change is “requiring a careful balancing of offensive and defensive interests, with due attention paid to certain sensitive sectors,” the Commission said in its introduction to the public consultation questionnaire.

While WTO members clinched a deal in December 2015 to eliminate agricultural export subsidies, among other decisions, efforts to agree on other farm trade reforms among the organisation’s 164 members continue to prove difficult. However, top officials have also said that an “overwhelming majority” of the trade body’s membership favours an outcome in farm subsidy talks ahead of the upcoming WTO ministerial conference in Buenos Aires, Argentina, this December. (See Bridges Daily Update, 19 December 2015 and 24 November 2016)

Echoing this sentiment, Hogan told his Geneva audience two weeks ago that agriculture “must be a key component” of a successful outcome at the ministerial, and noted that a positive outcome on agricultural domestic support would benefit the multilateral trading system.

Along with being an active participant in WTO talks, the EU is in the process of negotiating a host of bilateral and regional trade deals, with plans in the pipeline for several more.

The EU’s trade accord with Canada could be within weeks of entering provisionally into force, pending final ratification steps in the North American economy. Efforts are also said to be ramping up to clinch a high-profile trade accord with Japan this year. (See Bridges Weekly, 16 February 2017 and 23 February 2017)

Talks with other agricultural exporting giants are also underway, with the EU working with the South American customs bloc Mercosur to revamp those negotiations. The EU is also working with Australia and New Zealand to begin negotiations with both Oceanic nations, separately, in the near term. (See Bridges Weekly, 15 December 2016)

“Trade deals, done right, are a force for good for our farmers and food producers,” said EU Trade Commissioner Cecilia Malmström last month following the results of a Commission-requested independent study of the agricultural impacts of the EU’s trade deals with Mexico, South Korea, and Switzerland.

ICTSD reporting.

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