The think tank momagri’s position regarding the European Commission’s proposals for the post-2013 CAP
While the G20 November 4, 2011 Summit upheld the ambitious directions of the G20 Agriculture Ministers Meeting in Paris, the project of CAP reform introduced by the European Commission on October 12 appears as a standby document that is more responsive to an aspiration of budgetary status-quo than a project to solve the economic and strategic challenges of the 21st
Yet, the directions announced in the November 2010 European Commission’s communiqué on the CAP for 2020, brought the hope for a reform that would be up to the challenges. Though it acknowledges the need for risk management instruments, the current proposal only partially includes mechanisms to regulate agricultural markets and fight agricultural price volatility.
There is now a consensus on the negative consequences of international trade unregulated liberalization on agricultural price volatility and the need for stabilization policies.
Yet, the European Union seems to be the last stronghold that remains unresponsive to the risks of food dependency it causes to its people. Against the E.U., all its trading partners (the United States, Brazil, Russia and Ukraine among others) have placed agricultural at the center of their agendas, and some of them have earmarked considerably higher budget spending for agriculture.1
Paradoxically, the deep budget crisis currently experienced by the European Union might breed a truly new CAP focused on the key issue of volatility and price level.
As a matter of fact, this crisis is bound to upset the economic and budgetary order unlike any parallel in the history of mankind. The issue of financing of public policies––and that of the CAP in particular––will be all the more central tomorrow than it was yesterday!
This is the reason why the issue of the effectiveness of financial aid, in a budget that is by definition limited, must be addressed with open minds and regardless of ideology in 2012. Consequently, could the European Parliament launch a study on the effectiveness of the Single Payment Scheme (SPS), which account for close to 60 percent of the first pillar budget?
In fact, when agricultural prices rise, the validity of SPS becomes questionable. And when prices drop––for reasons not involving balances between supply and demand––the SPS are not enough to provide farmers with decent compensations.
Worse even, just as many other direct subsidies in other economic sectors, the market absorbs the SPS. They do not provide any benefit to farmers or consumers. As paradoxical as it might seem, even if their existence gives some reassurance to farmers, they influence price setting, such as for instance, that of inputs or seeds that are included in the level of SPS received by farmers. The price of agricultural commodities itself is distorted by SPS. Which is an incredible fact for those who want farmers’ better response to market signals.
This is why momagri advocates that SPS be shifted to genuine regulatory instruments. In an unstable environment, the priority is no longer in the decoupling but rather in the stabilization of agricultural prices and incomes.
The current proposal is based on an outdated blueprint and must be reviewed, or run the risk of losing the food independency of the E.U. The true CAP reform remains to be done!
momagri’s proposal: Financing a stabilizing CAP that has market management tools through the reorganization of SPSs
The regulation system proposed by momagri involves as key objective not to endure but to prevent and treat market imbalances without any increase in the budget for agriculture.
To that end, momagri recommends a renewed CAP that would still be built around two pillars. The first pillar would be based on a price stabilization mechanism around an equilibrium price defined by large product category and regulatory tools activated according to two upward or downward trigger thresholds. The second pillar would be maintained.
momagri will soon make public its work to propose an alternative CAP, whose key words will be: Reorganization of the SPS budget, adaptability of the European budget and reserve fund, equilibrium prices and market management tools, in particular through regulated public and private warehousing.
momagri is currently putting the finishing touches to the budgetary simulations of its proposals, which show that the CAP budget would be lower to the current package over several years. A share of the savings could be then used for a Reserve Fund in case of serious crisis.
An other CAP is possible!
1 SGPA study, http://www.momagri.org/UK/momagri-agency/The-SGPA-Global-Support-to-Agricultural-Production-full-report_958.html