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momagri's Strategic Proposals for the Goepel Report on the CAP 'Health Check'
Executive Vice President of momagri
On November 20, 2007, the European Commission drafted a project entitled "Preparing for the Health Check of the CAP Reform," which takes stock of the CAP and seeks to improve how it works and adapt it to today's challenges and to those of tomorrow. Based on this paper, the European Parliament's Agriculture Committee set about writing the "Report on the CAP Heath Check," led by rapporteur Lutz Goepel (PPE-DE). Rather than departing from the proposals submitted by Mariann Fischer Boel, this report is, on the contrary, right in line with them; it also mentions several strategic issues characteristic of the agricultural sector. Submitted to the European Parliament on December 19, 2007, this report was opened to proposals for amendments before the vote on February 26, 2008 by the European Parliament's Agriculture Committee.
Underlining several holes in the Goepel Report, Jacques Carles, Executive Director of MOMAGRI, highlights the three main "flaws" that must be corrected.
In this sense, MOMAGRI applauds the approval of certain amendments that seek to provide the CAP with strategic objectives, particularly in terms of food security, and to give Europe instruments for evaluation and simulation. These amendments could make it possible to carry out dialog with the European Council and the European Commission, through the intermediary of the European Parliament, in view of creating a new CAP that is better suited to respond to the major issues facing Europe and the world in the 21st century.
The Council of Agriculture Ministers meeting on March 17 and 18 approved the CAP "Health Check," indicating in the unanimous text that it would bear in mind the opinion of the European Parliament. Let's hope so!
The Goepel report demonstrates relatively clear support for the CAP Health Check proposed by Mariann Fischer Boel and for the reforms that have been carried out since 2003. While it does, on certain points, temper the systematic liberalism of the European Commission, it also tends to justify a move toward increased liberalization, without however mentioning the fundamental, strategic problems of Europe's agricultural sector.
On the contrary, it takes a managerial approach that does not account for the importance of agriculture – the objectives, particularly in terms of food security, and the stakes it represents – for tomorrow's Europe.
Furthermore, it implicitly validates the notion that agricultural prices have supposedly stabilized at high levels and that the 2003 PAC reform helped the agricultural markets to function properly by enabling farmers to benefit from the increased freedom of these markets.
This is a gratuitous assertion because, while prices and incomes in the grain and dairy markets did rise in 2007, this increase came after several years of low prices and falling incomes. Furthermore, other markets, like the livestock market, have not experienced such hikes. Often, the case is just the opposite.
The report says nothing about the U.S. Farm Bill, which became the Food and Energy Security Act after the 2007 Senate vote and which has been granted a budget well above amounts allocated up until now.
It thereby ignores a fundamental factor in the strategic thinking that should be driving Europe: why is the U.S. Congress (the Act passed with a 79 percent majority in the Senate) strengthening protectionist legislation while Europe seems to be dreaming about losing itself to the "bliss" of an unregulated, open market? It is truly surprising that the Agriculture Committee remains locked in a Eurocentric approach without any awareness of global realities.
Three points refute the certainties or premises underlying this report:
> The fact that the CAP Health Check is not based on any serious evaluation due to the absence of adequate evaluation tools.
Without any tangible basis, the European Commission has handed out high marks, directly opening the way for dismantling the CAP, on the pretext of continuing to reduce the agricultural budget as though this were an end in and of itself, while the other European policies are stagnating. Quite simply, reducing this budget cloaks the political weakness of today's Europe because it gives the illusion, while maintaining the budget, that the other policies are moving forward because their relative percentages are rising.
> Ignorance of the inherent volatility of prices on agricultural markets and of their impact on farmers' incomes and, therefore, on the CAP, no matter what its form.
Indeed, the main risk factor on agricultural markets is the set of "endogenous" risks that are inherent to the markets, i.e.: farmers' expectations, imperfect market structures and speculation.
By definition, private entities cannot insure against these risks, which depend only on the various actors involved, because they are hard to quantify and cannot be mutualized, just like climate risks, which are exogenous and, therefore, independent of any form of human action.
The principle of insurance is to calculate premiums based on the probability that events will occur. This is common practice for exogenous risks, and the science of insurance is based on a long scientific tradition carried down by actuaries. This is impossible for endogenous risks, with the best illustration being the stock market.
The economists of the European Commission are well aware of this phenomenon, but they do not have the necessary evaluation tools at their disposal. That is why the MOMAGRI model can give the Commission the assessment tools it is currently lacking. Indeed, for the first time ever, the MOMAGRI model accounts for endogenous risk in simulating different scenarios of possible agricultural market evolution. The first results we have received show that prices should continue to be highly volatile, underscoring the fact that no insurance system will be able to face this challenge.
> Therefore, the certainty of private insurance, which is the centerpiece of the safety net recommended by Lutz Goepel, will never be enough to compensate for the consequences of erratic market movements.
The large insurance companies will also gradually make their stance known, and it would be better to ask their opinion before assuming that they will find suitable solutions.
Therefore, the CAP Health Check, the reforms planned for it, and the Goepel report, before the amendments approved on March 12, 2008, are heading in the other direction, because they have almost completely discounted the search for public regulation measures, although they offer the only possible response to the specific characteristics of agricultural markets.
It is not up to member States to find solutions, because that would lead to re-nationalization and therefore cause differences among nations, making Europe even more fragile through a sector that, we are beginning to realize, is at the heart of tomorrow's strategic concerns.
Four amendments to the Goepel report are of particular importance because they underscore the role of food security, the need define strategic objectives for the CAP and the urgency of having simulation and evaluation tools to account for the risks arising from erratic market behavior. Furthermore, for the first time, they mention what MOMAGRI considers to be one of the major indicators: the search for the optimal balance between food security and economic efficiency.