EU Commission Outlines Potential Farm Subsidy Cuts in 2021-2027 Proposals

7 June 2018

The European Commission unveiled a set of legislative proposals on 1 June that would cut farm subsidies to European agriculture in the bloc’s next 7-year financial framework, while also granting member states greater authority over how support is allocated. 

The €365 billion legislative proposals outline how the EU’s Common Agricultural Policy (CAP) could function after next year’s planned departure of the UK, a net financial contributor to EU funds. They follow an earlier budget announcement from the Commission on 2 May, which covered a range of policy areas, including agriculture. At the time, the Commission had previewed some of the proposed CAP cuts while promising further detail in a few weeks. (See Bridges Weekly, 3 May 2018

The Commission said its agricultural budget plans would contribute to improving the environmental sustainability of EU farming, while also supporting climate action. 

"Today's proposal delivers on the Commission's commitment to modernise and simplify the Common Agricultural Policy; delivering genuine subsidiarity for member states; ensuring a more resilient agricultural sector in Europe; and increasing the environmental and climate ambition of the policy," said Phil Hogan, EU Commissioner for Agriculture and Rural Development, in a press statement.

The Commission also argued that the new CAP proposals would distribute support more fairly, improving the targeting of payments to small farms while boosting the ability of the EU agricultural sector to compete on international markets.

“These solid proposals will contribute to the competitiveness of the agricultural sector, whilst at the same time they reinforce its sustainability,” said Jyrki Katainen, European Commission Vice-President in charge of Jobs, Growth, Investment, and Competitiveness.

Re-nationalising EU farm policy?

The Commission’s blueprint would accelerate a move towards allowing EU member states more freedom to shape farm support policies, although the Commission says it would approve and monitor national plans for consistency and to help safeguard the EU’s single market.

The framework for the 2014-2020 CAP already allowed EU governments some degree of greater freedom to design farm policy schemes, such as by allowing them to “re-couple” support to production under certain circumstances. A series of EU farm policy reforms in recent decades have aimed at reducing the impact of government interventions on domestic and international markets by delinking farm subsidies from inputs and outputs. (See Bridges Weekly, 27 June 2013)

Under the new proposals for the post-2020 CAP, member states would have slightly less scope to provide production-linked payments than they do at present. In addition, national governments would still be able to switch support from rural development programmes to direct payment schemes, or vice versa, although some environmentalists have expressed concern that this could lead to funding for the former category being eroded under pressure from farm groups.

EU member states would be able to transfer up to 15 percent of the support allocated to them between the two categories, according to the Commission, while also being able to transfer an additional 15 percent from direct payment schemes to rural development programmes on environmental or climate grounds.

The cuts to the overall CAP budget that were previewed on 2 May would amount to 15 percent over the 2021-27 period once inflation is taken into account, according to analysis by Alan Matthews, Professor Emeritus of European Agricultural Policy at Trinity College Dublin. The figure is considerably greater than the five percent cut in nominal terms presented by the European Commission.

“The message is clear,” Matthews wrote in an article online shortly after the Commission announced the proposed cuts. “Direct payments to farmers must be relatively protected, even at the expense of severe cuts to Pillar 2 rural development expenditure.” The CAP is split into two main pillars, which have some interlinkages, with Pillar 1 dealing with direct payments and Pillar 2 addressing rural development.

However, the Commission anticipates that EU member states would contribute more of their own resources to rural development programmes in the 2021-27 period, following the introduction of new rules aimed at maintaining support to these schemes.

“Greening” requirements reformulated

The new proposed CAP features a new formulation for the EU’s environmental conditions for agricultural payments, which include a greater role for member states in setting out how these conditions are met.

Under the current framework, producers must maintain permanent grassland, protect “ecological focus areas,” and diversify their crops.

The proposed 2021-2027 CAP would have farmers respect a set of conditions that includes these and other earlier requirements, although under the new proposals EU member states would define the minimum standards that producers need to meet. In addition, national governments within the bloc would also be required to establish an “eco-scheme,” which farmers can choose to enrol in if they wish.

The existing conditions have come under fire from some farm groups, who argue that the criteria are burdensome and ineffective, and environmental campaigners, who have complained that the measures are often only poorly matched to ecological outcomes.

The Commission is now proposing that 30 percent of each country’s allocated rural development funds would be used to address environmental and climate issues, and that 40 percent of the overall CAP budget would contribute to climate action, although environmental groups have questioned the rationale behind these calculations.

Capping payments to large farms

The Commission’s proposals also resurrect plans to establish mandatory caps on payments to the largest EU farms – an idea that the European institutions considered in the talks on CAP reform which led to the adoption of the current framework, but that the bloc ultimately adopted only on a voluntary basis. (See Bridges Weekly, 27 June 2013)

Payments should be capped at €100,000, the Commission said, with support to farms receiving more than €60,000 also set to be reduced under the new proposals.

Small and medium-sized farms would also receive a higher level of support per hectare, under a proposed mandatory scheme that again builds on voluntary arrangements under the current farm policy framework. The Commission also proposes putting in place separate measures to help young farmers.

Farm groups, industry, and environmental organisations react

Despite an extensive consultation process in 2017, the Commission’s proposals have received a mixed reaction from different European groups. (See Bridges Weekly, 9 March 2017 and 6 July 2017)

“We are very concerned about the impact of these proposals,” said Joachim Rukwied, president of the European farmers’ organisation COPA, in a press statement.

“Direct payments, that are the best and by far most efficient way to stabilise farmers’ incomes and to help them to better manage income risks, are being eroded further under this proposal,” Rukwied said.

Environmental campaigners were also critical of the new proposals, albeit for different reasons. A statement from Birdlife Europe criticised the potential lack of guaranteed support for the protection of biodiversity and sustainable agriculture.

“This proposal drives another nail in the coffin of European biodiversity and puts the future of European farming in jeopardy. The CAP at this point has lost its last shred of legitimacy as a way of spending almost half a trillion euros of citizens’ money,” said Ariel Brunner, Birdlife Europe’s Senior Head of Policy.

The EU food and drink industry association, FoodDrinkEurope, also cautioned against expanding the role of EU member states in implementing the future CAP. A statement from the group warned that “safeguards are essential in areas such as coupled income support to ensure a level playing field within the Single Market for farmers and the operators they supply.”

Coming up

The Commission’s proposals make up just one step in a negotiating process with the other EU institutions, and the final outcome could differ significantly from what the EU’s executive branch has suggested.

The European Parliament, as well as EU ministers in the Agriculture and Fisheries Council, are now expected to consider the Commission’s proposals in a bid to shape agreement on the future approach to the bloc’s farm policy before the current financial framework expires.

The talks will also take place in parallel to similar discussions in Washington on the Farm Bill, which is due to set the direction for US farm subsidies over a five-year period. (See Bridges Weekly, 26 April 2018)

At the same time, the role of agricultural support in distorting global markets remains a key topic in talks at the WTO, which recently resumed in Geneva under the aegis of a new chairperson. (See Bridges Weekly, 31 May 2018)

ICTSD reporting.

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