The future of the Common Agricultural Policy post 2020: the legitimacy of CAP direct payments in question

In November 2017 the Commission published a communication on the Common Agricultural Policy post-2020 «The Future of Food and Farming» (European Commission, 2017).

On the basis of the Communication it appears that the measures supported are likely to be similar than those supported in the past. One of the main instruments (72% of CAP budget) are direct payments. These payments are aimed to support the income of farmers and are paid per hectare of agricultural land.

This income support is justified (European Commission, 2017) because «farmers income is lagging behind salaries in the whole economy«. In Spain income is around 29000 EUR per full time worker in the whole economy, 24000 EUR in agriculture (17000 EUR without CAP support)).

However some of the criticism is that in most European countries 40% of all farms in the FADN (Farm Accountancy Data Network) sample have off-farm employment and therefore the disposal agricultural income is higher. This fact is mentioned in several publications (European Court of Auditors, 2018, Mathews, 2017).

Another main criticism is that as these payments are based on farm area, the largest share of direct payments go to the largest farm (82% of payments goes to 18% of farms on the average of EU and for some member states like Slovakia or Check Republic the distribution is even more skewed).  In addition, some of the payments are transferred to land-owners and therefore do not go to farmers.

 Considering that 54% of the land in Europe is rented, Ciaian et al (2017) estimated that around 27% of total decoupled payments are transferred to land-owners. One of the outcome of this leakage is the increase in the price of land, which is a barrier for young farmers to enter the sector.

Figure 1: Share of Direct Payments received by the 20% of the biggest beneficiaries, 2015

Common Agricultural Policy post 2020
Source: DG-AGRI (2017)

DG-AGRI (Directorate for Agriculture and Rural Development) is aware of this inequality and has put in place (in the 2014 CAP reform) measures to better target support to farmers’ income like the redistributive payment, the capping or the deggresivity of payments.

However these measures have proven not to be very efficient (European Court of Auditors, 2018). In addition, the practical implementation of these measures can provide a strategic behaviour by land-owners by dividing their land in order to get benefits of the redistributive payments and avoid capping.

Another justification of direct payments is that they contribute to environmental sustainability. In this respect in the last reform the «greening» was introduced. Under these greening restrictions 30% of the farmers direct payments were depending on respecting some environmental friendly farming practices (crop diversification, permanent grassland and Ecological Focus Area). Several studies highlight the inefficiency of greening that has led to only small changes in management practices, except in few specific areas (European Court of Auditors, 2018).

Based on the scientific evidence highlighted in this post it is clear that a better targeted CAP payments are needed. Therefore it is not legitimate to keep the current direct payments. It is needed a cost-efficient set of measures to address the CAP policy objectives that are for the post-2020 reform (European Commission, 2017): smart and resilient agricultural sectors, to bolster environmental care and climate action and to strength the socio-economic fabric of rural areas.

One move forward will be to promote the use of income stabilisation tools and to reinforce the promoting of public goods. These payments should be based on a clear results orientation (if feasible measure by a quantitative indicator).

In this post I have not discussed the issue of the pressure on the budget for Agriculture. On 2nd May the next Multi-Financial Framework (MFF) will be released and it will be public whether the final outcome is closer to the more optimistic expectations of keeping the CAP spending at the current level or the more pessimistic one of reducing the CAP support by 30%. What is clear is that due to high pressure on the CAP budget, a more targeted and value-added design of the CAP is needed for the following 2029-2036 MFF (for the current one under discussion 2021-2028 we are too late).

Las opiniones expresadas son responsabilidad del autor y en ningún caso pueden ser atribuidas a la institución para la que trabaja.

References:

  • Ciaian, P.; d’Artis, K.; Espinosa, M. (2017). The impact of the 2013 CAP Reform on the Decoupled Payments’ capitalisation into land values. Journal of Agricultural Economics. doi: 10.1111/1477-9552.12253
  • DG-AGRI. (2017). Direct Payments (Financial year 2015). Brussels: European Commission Directorate-General for Agriculture and Rural Development.
  • European Commission (2017) The Future Of Food And Farming, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM 713 final of 29 November.
  • European Court of Auditors (2018). Future of the CAP (Briefing paper). https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=45498
  • Matthews, A. (2017), “Appendix 1: Why further reform?” (pp. 29–30) in Buckwell, A. et al. 2017. CAP – Thinking Out of the Box: Further modernisation of the CAP – why, what and how? RISE Foundation, Brussels.  
María Espinosa

María Espinosa

Maria del Pilar Espinosa Goded. Profesora asociada en la Universidad Loyola Andalucía. Ingeniera Agrónoma por la Universidad Politécnica de Madrid (UPM) (2002) y Doctora en Economía Agraria por la UPM (2009). Durante su doctorado ha visitado la Universidad de Gotemburgo, la Universidad de Newcastle y el INRA(Institut National de la Recherche Agronomique).-Rennes. Desde 2010 trabaja en la unidad de "Economics of Agriculture" en el Centro común de investigación de la Comisión Europea. Sus áreas de interés son la evaluación de la Política Agraria Común mediante programación matemática, así como la evaluación de la provisión de bienes públicos mediante experimentos de elección (choice experiments). Ha publicado varios artículos en revistas indexadas incluyendo Journal of Agricultural Economics, Land Use Policy, Ecological Economics. Una relación de los artículos se puede encontrar en https://scholar.google.es/citations?hl=en&user=Rn_kFSIAAAAJ&view_op=list_works

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