Redesigning the CAP

Options to redesign the European agricultural policy post 2020

Krijn Poppe LEI Wageningen UR

February 2016

Objective for the meeting / discussion

We carried out a study on the CAP-post-2020, for national discussions (at the time of the NL presidency)

Our objective: a presentation that helps to frame a useful discussion on CAP-post-2020

The judgement of the document should not be based on the question if all ideas are economically or ecologically perfect, but if the document would help a strategic conversation in 2016.

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Can we defend the CAP to the public ?

Governments face budget problems and other big policy challenges, like the Jobs & Growth agenda, the Refugee crisis etc.. Is the budget vulnerable?

Some of the main discussions:

● Budget goes mainly to larger farms, sometimes very large

sums

● Effectiveness and efficiency of Greening is questioned;

simplification is requested. But climate change asks

probably for more intervention

The food chain does not solve environmental / ecological issues and income problems of farmers: these problems and risks are still shifted to the tax payer

● Do we need a food policy to shift incentives (and involves the consumer, on sustainability and health)?

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Article 33 European Treaty

The common agricultural policy shall have as its objectives:

(a) to increase agricultural productivity by developing technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, particularly labour;

(b) to ensure thereby a fair standard of living for the agricultural population, particularly by the increasing of the individual earnings of persons engaged in agriculture;

(c) to stabilise markets;

(d) to guarantee regular supplies; and

(e) to ensure reasonable prices in supplies to consumers.

CAP is often defended with public issues like the environment, landscape,

biodiversity. Although the Treaty does not help us in that respect

Intervention logic DG Agri (pillar I, I+II, II)






Maintain market stability

Meet consumer expectation

Enhance farm income

Improve ag. competitiveness

Foster innovation

Provide public environmental

goods

Pursue climate change

mitigation and adaptation

Maintain agricultural diversity

Promote socio economic

development of rural areas

Explaining the CAP to outsiders is not so easy

due to historical bundling in two pillars that have no

clear link with the intervention logic

PROFIT, PEOPLE, PLANET: an improvement?






Food security

Risk management

Innovation

Fair food chains

Employment

Income support farmers

Liveable rural area

Public health

Environment

Climate change

Nature management

How will the farm sector change to 2030?

Farming is already very concentrated

● But we use social arguments based on very small farms to hand out money to large farms and (indirectly) land owners

The food processing sector and retail are also increasingly internationally concentrated

● But have not enough incentives to take responsibility for environmentally sound sourcing at fair prices

ICT has the potential to strengthen these trends in the coming years, or to disrupt it.

It makes sense to look to some future scenario’s, we must prepare agriculture and food for 2030 and later

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Strong concentration in farming: 5 mln farms matter

Source: FADN

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3 Scenario’s to explore the future (©AKIS)

HighTech: strong influence new technology owned by multinationals. Driverless tractors, contract farming and a rural exodus. US of Europe. Rich society with inequality. Sustainability issues solved. Bio-boom scenario.

Self-organisation: Europe of regions where new ICT technologies with disruptive business models lead to self-organisation, bottom-up democracy, short-supply chains, multi-functional agriculture. European institutions are weak, regions and cities rule. Inequalities between regions, depending on endowments.

Collapse: Big climate change effects, mass-migration and political turbulence leads to a collapse of institutions and European integration. Regional and local communities look for self-sufficiency. Bio-scarcity and labour intensive agriculture. Technology development becomes dependent on science in China, India, Brazil.

Policy targets: scenario High Tech

mitigate the effects, regulate industry where needed

Policy Target Relevance in scenario

Food security No problem, perhaps food stamps for low incomes

Risk management No issue, contracts and high tech help

Innovation Carried out by food chain partners

Fair chains Competition policy on contracts in chain

Employment Rural exodus: regional policy needed to mitigate

Income support Social policy for those not in food chains

Liveable rural area See employment: policy needed to mitigate

Public health Regulation on food safety, zoonosis, antibiotics

Environment, climate Solved by precision farming, regulation of industry schemes

Nature, biodiversity Contracts for farmers and food chain partners

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Policy targets: scenario Collapse

concentrate on food production and jobs


Food security High priority: Mansholt-type policy to intervene

Risk management Higher risks, hard to manage

Innovation Need for higher productivity

Fair chains Less an issue

Employment New entrants: need for advisory, innovation

Income support Higher prices, less need

Liveable rural area No issue: return to the country side

Public health Less important in times of crisis

Environment, climate Mainly mitigation climate effects, less regulation

Nature, biodiversity Nature is source, less regulation, no contracts

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Policy targets: scenario Self-organisation

CAP as menu for regions, maintain common market


Food security Manage common market between regions.

Risk management New market instruments

Innovation Strong and diverse; supported by policy

Fair chain Less issue in short supply chains, new players

Employment Support diversification (nature, care..)

Income support Safety net for those who lose in innovation

Liveable rural area Different needs between regions

Public health Level playing field discussions

Environment, climate Level playing field discussions, contracts

Nature, biodiversity Regional and local contracts for collectives

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Insights from the scenario-analysis

Different futures ask for different types of CAP

As the future is unknown, a resilient CAP:

● maintains instruments for different futures

● is flexible to adjust

● tries out new instruments that are needed in a specific future

Current CAP is not very robust in High Tech scenario: multinationals shift (environmental) risks and low rewards to farmers who ask CAP/tax payer for help and lobby against environmental policies

Nor in Collapse: Current CAP fosters scale increase, not jobs

Insights from the scenario-analysis

Regional diversity plays an important role in EU-28, in Self-Organisation and Collapse and for marginal areas in High Tech. A menu approach like in Pillar 2 would help.

Strengthening industry sustainability schemes by making CAP payments dependent on joining (a producer organisation with) such a scheme would make food chain responsible for sustainability and fair incomes. Reduces administrative burden: only the schemes themselves have to be audited by the government.

Targeting (also with contracting instead of cross-compliance and greening) and capping (e.g. linked to regional labour costs) could improve efficiency and free money for innovation in climate smart agriculture etc.

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PILLAR 1

PILLAR 2

Cross Compliance Greening

Contracts

agri-environ-mental mgt.

Domain

A

Domain

B

Domain C

Capping and Targeting

Align with industry and Public Contracts

Support (social) innovation

DESIGN PRINCIPLES

Future CAP: objectives for the domains

Domain A

• Maintain market stability

• Enhance farm income

• Improve agricultural competitiveness (fair chains)

Domain B

• Provide environmental public goods (incl. nature)

• Pursue climate change adaptation and mitigation

• Ensure public health (farm level and food policy)

Domain C

• Promote socio-economic development of rural areas

• Foster innovation

• Maintain agricultural diversity in EU (employment)

From current CAP to the future

• Towards capping income support per farmer based on real income needs ?

• Disaster relief (safety-net?) and incentives risk management

Domain A

Food security

Risk management

Income support

• Towards payments for greening based on sustainability schemes industry or regional government: contractual relationships (include antibiotics, animal welfare etc.) in addition to regulation. Start food policy

Domain B

Greening

Climate change

Public health

• Foster innovation and competitiveness (EIP, advisory service, producer organisations, investment aid)

• Relocate industries where needed

• Promote socio dynamics rural area

Domain C

Liveable rural area

Innovation

Employment

Target: Food security

European agriculture (and policy) need to change:

Higher yields are needed (for export of products)

Dependency on imported feed should be reduced

Food first, no subsidies for bio-based products

Realistic effective and efficient instruments are:

Innovation and advisory for higher yields

Stimulation protein crops by product-based area payment (although inefficient)? >> With innovation-instruments

(Product based) area payments for marginal land when farmed; no ecological focus areas

Favour plant-based diets / production over animal ones

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Target: Risk management


Income stability (and price stability)

Less animal transport

Reduce plant- and animal diseases


Market-based risk instruments: advise them, subsidize

Investment aid for hardware (irrigation equipment etc.)

Financial support in case of disasters (catastrophic risk)

Regulate animal transport or help to build up industries for breeding young animals or fattening calves elsewhere (move production east to reduce animal transport)

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Target: Innovation


More innovation needed for better yields, lower production costs, product quality, market orientation, more sustainability

Support new technology trends (ICT-precision farming)

Develop new chain concepts like short supply chains


Support for interactive innovation, advisory service

Guarantee fund / venture capital for risky investments and new business models

ICT: paying agencies involved in data exchange (Internet of things), provide open data

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Target: Fair chains


Position of farmers in food chains has to be strengthened


Support for producer groups and cooperatives.

Safety-net (temporary extra income support?) in case of extremely low prices

Make food chains responsible for fair incomes (support conditional on being in a fair trade scheme?)

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Target: Employment - jobs and growth


More (multifunctional) employment on farms

Support new entrants, including young farmers

More employment in rural food industries (value added)


Innovation support for value added product chains, including short supply chains

Financial support for new entrants (subsidized loans etc.)

Link direct payments (if any) to employment, not to land (in which it is capitalised).

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Target: Income support for farmers


Many farmers have a (very) low income (although we do not know their non-farm income and wealth), due to uncompetitive farm size and due to farm management

Direct payments are not very efficient (go to large farms and are capitalised into land)


Cap direct payments (with e.g. the regional labour cost in industry as a maximum)

Take fiscal data of farmer in account in capping (targeting): only support for farmers with a low overall income

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Target: Liveable rural area


Stimulate farmers to maintain attractive landscape

Employ farmers in public works (maintenance water-networks, snow clearing etc).

Link (regional) consumers to (modern) farming


Subsidize / make contracts for landscape maintenance

Stimulate local government to procure ‘farm services’

Advise / subsidy on diversification into agri-tourism, care-farming etc.

Subsidize operational groups and Leader-activities

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Target: Public health


More transparency / tracing & tracking food safety

Reduce risks of zoonosis

Reduce use antibiotics (animal production), pesticides

Promote plant-based diets


Stimulate ICT for tracing and tracking, smart farming

Support for re-location of livestock industry

Subsidise (conversion to) organic farming

Subsidise environmental schemes that pay attention to reduction of antibiotics, pesticides (or regulate use)

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Target: Environment


Reduce pollution of agriculture (nutrients in water, pesticides, manure)

Maintain production capacity soils (organic matter)

Adopt circular economy, livestock-manure-soils-feed cycle


Stronger regulation in cross compliance (e.g.max l.u./ha; green cover)

Oblige sustainability accounting; link payments to sustainability schemes food industry (changes incentives)

Support for groups of farmers who deliver ecosystem services

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Target: Climate change


Mitigation: Reduce CO2 and other GHG emissions

Adaptation: Adapt to climate change (risk management)


Oblige sustainability accounting on GHG; link payments to sustainability schemes food industry (changes incentives)

Incentivize certain production methods (no tillage, permanent grassland)

Emission trading for (larger) farms

Support innovation climate smart agriculture

See risk management / innovation for adaptation strategies

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Target: Nature management + biodiversity


Towards more nature-inclusive agriculture

Extra attention for low-intensity / marginal grasslands

Farmers should pay more attention to soil management


Contracts with (collectives of) farmers to produce public goods

Incentives for farmers in contracts or cross-compliance regulation for real crop rotation (not: grow 3 crops).

Support innovation (advise, interactive innovation groups, link to sustainability schemes food brands) on nature-inclusive agriculture

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Challenges for policy makers

This is fuel for a strategic conversation – not more

Is there agreement on a market-based approach?

What choice in the relative importance of different policy targets and trade-offs?

Are some futures desirable or unavoidable: adjust CAP in that direction? (but keep it robust for others)

Even more attention to Food Policy ? Or Jobs & Growth?

Which speed of change to choose ?

And later: details on instruments and consequences.

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Is this useful for

a strategic

conversation ??

[email protected]

wageningenUR.nl/lei

Economy & Finance

Redesigning the CAP