EU farm policies, known as the Common Agricultural Policy or CAP, have been at the center of international trade policy debates for 40 years. The EU Commission has begun a review of the CAP reforms initiated in 2003 to make adjustments for 2009 to 2013. In a press release on a blueprint of the issues, the Commissioner responsible for Agriculture and Rural Development, Mariann Fischer Boel, commented, “Does the fact that we are conducting a Health Check imply that the patient is sick? Certainly not: but it`s quite normal for perfectly healthy people to visit their doctor to see whether they need to do anything different to ensure they stay in good shape.”
The Health Check is to address three main issues:
The 2003 CAP reforms began to decouple payments from production with a Single Payment Scheme based on historical production. It is becoming harder to justify differences in payments based on a history that is irrelevant to current conditions. Policy options will be considered for flatter rates within countries. Across the 27 countries and seven million farmers, 20 percent of the recipients receive 80 percent of the payments. The blueprint has an example of changes with payments above 100,000 Euros ($150,000) reduced 10%, payments above 200,000 Euros reduced 25 percent and those above 300,000 Euros by 45 percent. An increase in the minimum area required for payments is being considered to ease the administrative burden of the program without hurting real farmers. The current minimum is three/fourths of an acre. For countries where payments continue to be partially coupled the Commission will consider on a case-by-case basis the need to fully decouple. Cross compliance for payments and EU-standards for agricultural activity has run into the perennial problem of striking “the right balance between the costs and benefits of any requirements.”
Market intervention and supply control to manage market prices was once the heart of the CAP. The Commission will now consider whether, “the existing supply management tools serve any valid purpose now, or whether they simply slow down the ability of EU agriculture to respond to market signals.” The goal is to have a safety net without having to subsidize sales of excess supplies in the domestic or export markets. One consideration is to retain intervention for bread wheat as a safety net, but allow other cereals to seek market-driven price levels.
Closely related to the supply management issue is abolishing the set-aside of land that was instituted to help control supplies. That will be partially driven by prospects that the recent higher market prices are permanent. Biofuels are mandated to supply 10 percent of liquid fuels by 2010 and may provide enough market demand to eliminate set-asides. Environmental benefits have been achieved on the idled land, and this has led to discussion about a conservation reserve type program for riparian strips, reforestation, climate change adaptation and biodiversity corridors.
CAP reform cannot be discussed without considering the dairy quotas that are set to expire in 2015. The quotas were designed to deal with surpluses, but now there is a growing demand for high valued products like cheese and fresh dairy products and intervention is less needed for butter and skim milk powder. The blueprint proposes a gradual increase in the quota until 2015 so that dairy producers can adjust to the new opportunities in the market. That idea has already drawn responses from dairy exporting countries that fear that too rapid an increase in production would break export market prices. Regardless of how the quota is dealt with, some considerations will be given to dairy production in mountainous regions not able to compete.
The blueprint has a section on new challenges. Risk management, both price risk and production risk, is at the top of the list. Any programs would be in a rural development policy framework and meet the green box criteria for WTO programs with fuller consideration for programs after 2013. Climate change policy is seen as a major policy driver for bioenergy and water management and may become part of the cross compliance to receive farm payments. Support programs for energy crops will be reconsidered in light of the mandates for bioenergy use and current high market prices.
Rural development is to be given more attention in the years ahead. With the CAP budget fixed until 2013, increases in rural development funding will have to come from exiting CAP funding through “compulsory modulation.” That is a shift in funds that go to farmers who receive more than $5000 Euros ($7,500) under existing policies. The suggested policy is to increase the current 5 percent by 2 percentage points in 2010-13 to 13 percent.
Releasing the blueprint begins a six month consultation by the Commission with special interest groups. It has scheduled two stakeholder seminars for December 6 and January 11. In the spring of 2008 the Commission will release specific legislative proposals which it hopes will be adopted by the agricultural ministers by the end of 2008.
The Health Check blueprint is good news for trade policy. Decoupled government payments and allowing markets to set commodity prices are positives for international markets. Recognizing the impacts of bioenergy and climate change policies on markets should limit subsidies that distort markets. Giving the EU’s import tariffs and other barriers the same market orientation would complete the transition of EU policies to the 21st century.