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CAP 2020: less budget, more greening

05/09/2018 - François-Xavier Branthôme - CAP 2020: less budget, more greening (Sept. 2018) - Read in french
Budgets shrink drastically and greening introduced at all levels of the reform

For many countries of the European Union, and more specifically for several of them like Luxembourg, Sweden or Finland, etc., CAP support represents a major proportion of farmers' income. However, and despite this support of considerable importance, agricultural revenue remains in the vast majority of cases well below the average work income within European countries. 
Average CAP support for the annual income of farmers in 28 countries of the EU, and comparison with the average wage within the economy as a whole.

The "double impact" of Brexit
The question of resources and budgets is therefore a fundamental issue for the way the current single big joint policy of the EU is going to function. And operators within the European agricultural world are specifically very worried to see the EU eroding budgets that remain of vital importance for many of them.
Among the main changes to the CAP that are due to be carried out by 2020, the main one is the consequences of Brexit on the overall budget of the European Union, first of which is the certain impact of the withdrawal of Britain's contribution to the common agricultural budget. For MEP Éric Andrieu, the cuts presented to European MPs by the Commission in its proposal (May 2018) for the budget 2021-2027 are clearly bigger than previously announced, particularly with regard to the Common Agricultural Policy. "When expressed in constant-price euros with regards to 27 Member States, we are actually talking of a 17% drop in the CAP budget, of which 14% just for the first pillar!", explained the agriculture and rural development spokesperson for European Social Democrats. 
The Commission’s proposal for the Multiannual Financial Framework 2021-2027 includes EUR 365 billion for the CAP. Out of this amount, EUR 265.2 billion are for direct payments, EUR 20 billion for market support measures (EAGF) and EUR 78.8 billion are for rural development (EAFRD).

For a long time, the CAP has been an essential and high-priority European policy, and the only real common program carried jointly by all Member States. When one of these members leaves the Union, the common agricultural budget must inevitably be decreased, all the more so for the fact that the exiting Member State (the United Kingdom in this case) was a positive contributor to the CAP budget (meaning that the British contribution was higher than the total received by British farmers). This is the double impact of Brexit, with the end of British contributions to the common agricultural budget on the one hand and the disappearance of the positive balance previously contributed by Britain to European coffers on the other hand... 
Given that the different forms of aid are obviously calculated according to the general budget, it should not be forgotten that Member States clearly and definitely rejected the idea of a hike in national contributions to the CAP budget in order to compensate for the exit of the United Kingdom from the European system.
It is therefore impossible to avoid a drop in resources.
 
Are "new" sectors eligible?
In order to compensate for Brexit and finance new priorities, the Commission has put forward an official proposal to reduce by 5% the budgets of the Common Agricultural Policy (CAP), in constant euros. The second consequence of this contraction is the risk to a number of crops that currently benefit from coupled aid to suffer a drop in support for their sector. Processing tomatoes are in this situation, with aid currently paid to Portugal, Spain, France, Italy, Greece, Malta, Czech Republic, Hungary, Slovakia, Poland, etc. Once the CAP budget is reduced (by 15 to 17% approximately according to current estimations) due to European policies and the decision of the United Kingdom to leave the Union, each nation's financial package – its share of the total European package for agriculture – must also necessarily be reduced. For the time being, it is not possible to know how the various systems will evolve, as the European Union does not wish to enter into this debate and each country remains free to manage its own support package as it sees fit. So it is still unclear whether all coupled aid will be subjected to an egalitarian reduction or whether future distribution will require the launch of debates that will be as difficult and time-consuming as those that occurred in 2007. In any case, the economic, commercial, technical and social contexts that justified a number of decisions during the previous reforms have now changed drastically, and discussions will take a difference turn, while at the same time, European level discussions have not yet ended and no decision has yet been taken.

Along with these initial aspects, one other fact must be taken into account: a number of crops that were not previously eligible for coupled aid schemes during the last CAP reform in 2013 are now requesting approval for the new subsidy scheme. The emergence of these new claimants means that participants in agricultural negotiations must consider the future of their own sectors, generally agricultural crops that have benefited from coupled aid up until now. The arrival of new crops directly into the sub-package of each nation's coupled aid budget will necessarily lead to shrinkage in the subsidies allocated to previously eligible sectors, a situation that does not satisfy current participants. To date, none of these dispositions that depend on national decisions have really been determined.

 
Communication from the Commission to the European Parliament, to the European Council, to the European Economic and Social Committee and to the Committee of the Regions: Multiannual Financial Framework 2021-2027

Transfers from the 1st to the 2nd pillar
It is nonetheless abundantly clear that the context of the CAP reform implies a major transfer of 1st pillar credits with major impacts (roughly all the items linked to direct aid (single farm payments (ex-SFP), coupled aid subsidies, sector support aid, etc.) towards the 2nd pillar, dedicated to rural development. This second pillar has already benefited from major transfers over the past decade, particularly in 2013 when almost 15% of first pillar credits were shifted toward the second pillar.
With regards to the current approach to the CAP reform, the Commission wants to be even more demanding: according to the office of Phil Hogan, European Commissioner for Agriculture, this transfer from the first to the second pillar has already been decided, and the Parliament, which is relatively favorable to rural development policies, will not oppose it. All of the aid that is due to be implemented, including first pillar credits, will be increasingly subjected to greening requirements (eco-conditionality), and to compliance with agro-environmental regulations that will be consistently more demanding and constraining. This could be even more relevant to coupled aid that is, due to its nature, somewhat exempt from the general aid scheme. In other words, if this aid is to be maintained, it will most likely be subjected to compliance with strict rules and practices with regard to the environmental impact of agriculture. This greening of European agricultural policy will most certainly be a major feature of European agricultural policies over the next few years, with a transverse influence on all aspects of the reform and of the CAP in general.

Globally, the Commission's proposals are based around a consolidation of direct payments targeting: new direct payments will be strongly focused on supporting small and medium-sized family farms as well as encouraging young farmers to set up their own businesses. This quality focused orientation will be accompanied by a proposal for reducing payments after they reach EUR 60 000 and capping payments at EUR 100 000 per farm. Direct per-hectare payments granted by the different Member States will continue to converge towards the EU average. It has also been proposed that Member States increase the level of support per hectare for small and medium-sized farms and that a minimum of 2% of the amounts allocated to support payments in each Member State be specifically reserved for young farmers. The Commission has also asked Member States to ensure that only currently active farmers – "real" farmers – are able to benefit from this income support. Finally, it has also been planned that complementary support measures (coupled aid) are to be maintained for sectors that are specifically encountering difficulties, in order to help them improve their competitiveness, their sustainability or their quality.

A complicated schedule
An interesting, if not decisive, aspect of this reform is the complicated schedule of its implementation. European Parliament elections are due to take place in May 2019 (with a change in the Commission to follow in September 2019), followed by federal elections in Germany, one of the two main countries to finance the European Union (the other being France). European policy experts have noted that outgoing teams of decision-makers will find it difficult to obtain validation for the multiannual economic framework that is required to supply the financial resources of the EU budget – and therefore for the CAP after 2020 – both at the level of the European Parliament and at the level of the participation of Germany, whose "political clout in Europe" is undeniable. All of the discussions currently taking place around the CAP reform are subjected to the deadlines and constraints of this electoral schedule. With this in mind, it could be said that the current functioning of the CAP system will be prolonged until 2021, possibly even later, in order to give incoming teams the opportunity to redefine European budgets and the priorities of their new mandates.
So the actors of the different European agricultural sectors – including the tomato sector – prefer to work with a scheme they already know, despite its imperfections and problems, rather than get involved in negotiations for a reform based on a future budget that has not only been reduced but could also potentially see major changes in terms of the sectors that can benefit.

To date, it is not known what will be the final fate of the CAP – but all of the experts involved agree that it will be largely less favorable to agriculture in general due to the mechanical effect of UK withdrawal from EU finances and also to the fact that European political leaders – with Mrs. Merkel and Mr. Macron at their head – are favorable to the institution of two other priority policies for the EU, alongside the Common Agricultural Policy: a European Policy on Migration and a European Policy on Security and Defense. In order to supply the required finances for these policies, the contributions of each of the Member States will need to increase by 1.5 to 1.8%, which the 27 Member States have refused. In the current state of discussions, it is not impossible that the EU may decide to carry out these new common policies with a constant budget, which could have an even more constraining effect on the proportion of the total European budget dedicated to the CAP. So it is legitimate on behalf of this issue's decision-makers to take their time in these discussions, all the more so for the fact that current political teams will most likely not be the ones to finally take on the responsibility for the definition, the financing and the implementation of the newly reformed CAP.

European agricultural sectors are therefore likely headed towards a transition period, although discussions are due to resume during September by referral to Parliament. As they stand, current negotiations are not sufficiently advanced to clearly define the main features of the CAP 2020 and summarize its future content. What is clear is that the future agricultural policy will be greener, subjected to an increased number of controls and, as an indirect consequence of British withdrawal and the reduction in the CAP budget, it will include mechanisms to target and cap aid, mechanisms that Member States have until now refused to institute.

A highly anticipated reform, both in Europe and elsewhere...
In its proposal dated 2 May 2018, in the section relating to natural resources and the environment, the Commission explains that sustainability is the guiding principle of the EU approach to a number of different issues, and the "EU budget is a driver of sustainability." 
"The Commission proposes a modernised common agricultural policy, [...] maintaining a fully integrated Single Market for agricultural goods in the EU. This modernised policy will [...] place a greater emphasis on the environment and climate. 
The modernised policy will have a budget of EUR 365 billion (in addition, an amount of EUR 10 billion in Horizon Europe will support research and innovation [...] and the bioeconomy), to be built around two pillars: direct payments to farmers and rural development funding
." The Commission is proposing a new delivery model, relinquishing the current approach based on compliance, and replacing it with an approach "more oriented to results" in order to reach common objectives set at EU level, but leaving more room for Member States to implement them with flexibility.

Some commentators claim that the new CAP will not be implemented before 2023. But sooner or later, the effects of the ambitious objectives fixed by the Commission will be examined closely both by operators involved at the European level, particularly within our tomato processing industry, and by major players of the big competing industries in the United States, Brazil or China, who are developing and increasing their own budgets in terms of agricultural and food policies.

 
For the first time since the implementation of a European budget, the CAP will no longer be Europe's priority policy in terms of budgetary volume.

Sources: European Commission, various

Some complementary data

 
 
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