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It brings together, managers from the agricultural world and important people from external perspectives,
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Which CAP for which European agriculture after 2013 ?



A synthesis on the work of “CAP 2013” by the French Society of Agriculture


Gilles Bazin

As European institutions are currently debating the next great reform of the CAP and as the world of politics and economics has no reservations about voicing an opinion on this reform, the French Society of Agriculture (l’Académie d’Agriculture de France – AAF) has also decided to join the debate by publishing a synthesis of its views on CAP 2013.

The AAF is a voluntary association originally founded in 1761 by Louis XV under the name “Société de l’agriculture de la Généralité de Paris. Their objective is to assist in the evolution of agriculture and rural areas by contributing to scientific, technical, economic, legal, social and cultural domains.

The synthesis presented below, entitled "Which CAP for which European agriculture after 2013?", was written in April 2010 by Gilles Bazin, AAF member and rapporteur and Professor of Agricultural Policy at AgroParisTech.

The objective of this synthesis is to provide a comprehensive review of the new challenges faced by agriculture and to assess the adequacy of the current proposals for the CAP’s reform around two questions: "Which agriculture do we want for Europe and what are the best economic and political means to achieve it?

We recommend reading this article which not only emphasizes the scientific falsehoods largely responsible for the impasse in which we find ourselves, but also assesses in an objective and scientific manner the proposals for the regulation of agricultural markets that are currently debated by European institutions.

Momagri editorial board

Excerpts from the summary of the Synthesis of the work by “CAP 2013”: Which CAP for which European agriculture after 2013?
Rapporteur Gilles Bazin

The "CAP 2013" workgroup follows various work, discussions and proposals carried out by the AAF notably during the assessment of the CAP in 2008. This assessment aimed at expanding the 2003 reform by reinforcing the process of deregulating agricultural markets and decoupling virtually all the support implemented following successive drops in intervention prices for cereals and beef since 1992. The workgroup strongly criticized these proposals, highlighting the weakness in the theoretical framework of the economical and social sciences mobilized to affirm the legitimacy of the CAP’s successive reforms. This criticism mainly focused on the fact that the neo-liberal principles applied to agricultural markets with reduced border protection and the scheduled termination of intervention mechanisms and supply management, were likely to result in serious market crises and destabilize European agriculture.

The in-depth decoupling of support (which is neither linked to prices nor agricultural production) presented by the Commission as the "miracle" solution for stabilizing markets and supporting revenues, seemed to us to be ineffective and unfair, creating an economically and socially unacceptable rentier effect. It seemed equally urgent to expand the CAP’s environmental, economic and social objectives (measures for environment management, maintaining agricultural employment and improving the distribution of added-value from production chains to consumption) and to give the CAP a new dietary and nutritional dimension.

"CAP 2013" develops this line of reasoning and has a more long-term vision of the objectives and the means for a renewed agricultural policy. It takes into account the new economic and budgetary context which will influence negotiations and the serious crisis affecting most agricultural markets (cereals, milk, meat, wine, fruit and vegetables ...) which resulted in the historically low income of European farmers in 2009. It also takes into account the Commission's initial views on the priorities for the period 2014-2020, certain recent work by European economists and the proposals being debated by associations and professional organizations on the future of the CAP. Finally "CAP 2013" will seek answers to these two questions: What type of agriculture do we want for Europe and what are the best economic and political means to achieve it?

[…]

1. Maintain a consistent set of tools for agricultural market intervention to meet the diversity of production and European structures

Given the social, environmental and qualitative demands increasingly imposed on European agricultural production, production costs will remain above world prices and the granting of direct compensatory aid will remain necessary in Europe. To meet market regulation objectives, such aid must regain its countercyclical characteristics, i.e. be adjusted in function of price fluctuations. To conciliate the objectives of market regulation, social equity and rural planning, direct payments should be capped to a limited volume of production (or indirectly to a limited number of hectares or livestock) and to a maximum value per asset, the amount could be adjusted according to market conditions without encouraging overproduction. They must also respect common good agricultural and environmental practices. The need for a balanced distribution of agricultural activity in rural areas also implies the possibility that this aid be region-specific (which concurs with the existing principle for the support of agriculture in less favoured areas - LFA).

• Storage, volume control and price intervention are essential for guiding production and avoiding excessive fluctuations in revenues. Market organizations, which take into account the specificities of different agricultural commodity markets, remain necessary.
• A certain level of border protection must be preserved for main European produce and directives must be reviewed (for European food security and safety, the European family farming social model and the costs related to the standards imposed on EU farmers).
• Single Payment Systems (SPS) that create a rentier effect and increase access to land are unintelligible and socially unacceptable both to producers and taxpayers. They must be replaced by more flexible and fairer support mechanisms.
• CAP budget management should be much more flexible in order to match resources to needs and cope with crises (health, climate or markets).
• Market organizations and the economic organization of production channels should be complementary.
• Insurance against increasing climate and health risks should be reinforced, but it is illusory and expensive to think that insurance against loss of sales can replace government intervention in agriculture.

Storage and flow management: essential tools

These are mainly conventional intervention mechanisms through storage and clearing that continue to be useful because early intervention on flow is less costly than correcting later fluctuations in price or income. But these mechanisms implemented by the CAP in the 1960s are limited because of stock accumulation. They must therefore be accompanied by mechanisms that minimize their recourse (in time and quantity). There is also a need for production control mechanisms and supply management tools, which adjust depending on the state of stocks (notably quotas and frost).

In the dairy sector, quotas have been effective in controlling the supply of milk and milk products while contributing to a territorial distribution of production across mainly family structures. In addition, they have helped control CAP spending. The dairy crisis of 2008-2009 demonstrated the limits of the withdrawal of supply management, and the disastrous consequences that falling milk prices could generate on production structures (fall in income), but also on CAP spending (reintroduction of export refunds). It is therefore necessary to maintain milk quotas, or even reduce them so that they match European consumption while allowing the most competitive producers to sell their milk above quota, but at world prices.

Europe should only guarantee product prices for predefined quantities, amounts in excess could be sold on the free market, necessary for “margin” adjustments. This would demonstrate that if guaranteed prices are well above the average market price, the residual fluctuations will be much lower than when the free market operates on the total quantity produced. With this type of system, the production quantity under guarantee is assured. Minimum food security would therefore be assured, from the moment the amount of authorized quantities at guaranteed prices match domestic consumption. Therefore, most of the rewards obtained through guaranteed prices would be acquired without the disadvantage of overproduction disrupting international markets. Moreover, if the guaranteed amount is well below national consumption and if the price guarantee works through "compensatory payment" (refund of the difference between the price obtained and the guaranteed price), then the system should be compatible (at least theoretically) with the WTO requirements, because the quantities produced in excess of sustained amounts are sold at "marginal cost", which is the very definition of the absence of "market distortion".

Market organizations and the economic organization of production channels should be complementary

Inter-professions can affect supply and prices, closely connected to the realities of the land and the produce. They work well in certain high value-added sectors (Comté, Champagne ...) but much less in those sectors where the distribution of value-added is very contentious (e.g. basic milk, fruit and vegetables) and related to retail margins which do not fall into this type of negotiation. The management of the relations between producers, processors and distributors should be improved to make margins more transparent and the distribution within value-added sectors fairer. Only the government is capable of balancing-out this power struggle. This arrangement requires a revision of the European laws on competition and the Commission must acknowledge the specificities of agricultural markets. Without a regulatory European framework, producers will not have enough bargaining power.

Insurance schemes must be consolidated, but they are not a substitute for state intervention

Insurance schemes and mutual funds for climate and safety are solutions to be evaluated in terms of their economic and fiscal efficiency before making them a standard for all produce. State backing (reinsurance) seems necessary given the increasing frequency of these risks becoming systemic (disease or drought across the EU).

Insurance against loss of sales is mainly used for arable crops in the United States and is based on the average price over the past 5 years (excluding the best and the worst), it does not insure against downward trends in the medium term, but only against price fluctuations from one year to the next. It can also be very expensive due to price volatility and the amounts obtained by insurance companies (cost $8 billion in 2010 in the U.S. - $2 billion of which was for the companies). It seems therefore ill suited to Europe.

The necessity of border protection when faced with the volatility of global markets

As a consequence of the previous proposals, border protection is an indispensable tool for any agricultural and food policy. In all events, it must remain unrestricted for developing importing countries. However, tax on imported foods must be justified by taking into account the extra costs related to the European agricultural model and in particular the health and environmental standards imposed on EU producers.

The proposals for reducing customs duties made under the Doha Round bear important factors of market turmoil, notably on meat markets in Europe. Therefore Europe has no reason to single-handedly bear the negative consequences of the liberalization of agricultural trade and it should not feel obliged to make any further concessions to conclude the Doha Round. Since only a minority of emerging export countries seem to benefit from the current proposals, an absence of agreement should not be considered a political failure, but rather a return to economic realities.

Also, the pursuit of dismantling the protection and support policy, undertaken during the Doha Round negotiations, does not meet conditions set by the Marrakech Agreement of 1994 and listed in Article 20 of the Agreement on Agriculture which stated that "non-trade concerns" should be taken into account in future negotiations. Therefore discussions in Geneva should be paused in order to assess the results of past negotiations, which are formally provided for in Article 20 in order to reconsider the "modalities for agricultural negotiations” established by the Chairman of the Agricultural Committee, so that non-trade concerns and new elements of world markets be taken into account. This pause would also enable the EU to define the role of its agriculture for the next two decades, to clarify how it intends to provide European citizens with food (in quantity and quality) and to establish its budget for this agriculture and this food.

In parallel, the EU should proceed with the analysis of its rights and obligations in accordance with WTO agreements. All this work should enable the European Council and Parliament to establish, in the most concrete and most accurate way possible, which new commitments and new obligations the EU can accept during the Doha Round and which protection is available for it to meet the objectives assigned to agriculture.

2. Paying for public good and non-commercial environmental services provided by farmers

The interaction between agriculture and the environment can either produce positive externalities (landscape maintenance, biodiversity conservation, natural hazard reduction ...), or negative externalities (pollution of water resources, soil erosion, deterioration of habitats....). So agriculture provides not only dietary and non-dietary agricultural produce, but also environmental services, and more generally, rural public good through landscape management and maintaining the economic, social and rural fabric (particularly the commercial activities and public services essential to the vitality of rural areas).

As a tool of sanction, aid conditionality aims primarily at limiting negative externalities instead of increasing "positive externalities". Even though buffer strips or grass strips along waterways are an outcome of conditionality, this type of "good agricultural practice" is still a minimum standard, which does not take into consideration entrant quantities or production routes. Moreover, we observe that agri-environment measure (AEM) incentives consist in fact of offsetting shortfalls against the reference yields of conventional agriculture. Therefore, AEMs do not strictly pay for environmental services.

Finally, we can only emphasize the limited impact of AEMs, even with produce increase due to aid modulation determined during the assessment. The five year contractual duration of AEMs, does not encourage long-term agri-environmental commitments when compared with non-contractual "decoupled payment rights" which are more of an incentive because of their amount. The identification of environmental public good through the “new challenges” determined during the CAP’s assessment, is an interesting chapter in environmental integration by rural development programs, which should be applied to the CAP as a whole.

Specifically, this remuneration concerns:
1) maintaining ecosystem regulatory functions such as water resource management, carbon confinement and soil protection.
2) supplying environmental services such as biodiversity conservation, protection of natural habitats and rural landscape protection.

Production systems that provide environmental services already exist: for example, low-level input farms, the grassland systems and organic farming...
It would be better if the CAP supported the development of this type of agriculture with greater incentives. Remuneration for public good and environmental services must form part of contractual and collective approach on a regional scale and over a period of ten years to ensure a higher level of commitment. This support should also be determined by use or farm size in order to limit the windfall effects seen with land management contracts.
Moreover, as the production of agricultural goods and marketable and non-marketable agricultural services are irremediably linked, it is impossible to manage them independently, which is why there is no point in dividing the CAP into two pillars, because one seeks to remedy the negative consequences on employment and the environment caused by the other.

3. Supporting the demand for quality food produce with a high nutritional dimension

So far, the agricultural and food policy in Europe has remained mostly oriented towards supply management and has shown little interest in demand. In the current context of rising unemployment and poverty, Europe must establish a more systematic food aid policy directed towards specific categories (social groups in difficulty, institutional catering, notably schools) and certain high-nutrition produce (fruit and vegetables, certified produce ...). These aids are in line with the nutrition program to combat obesity and the objectives of Grenelle de l’Environnement (6% of UAA in organic farming in 2012). Part of CAP aid could re-boost production while intensifying demand for quality agricultural produce. Associations and local authorities could then be supported to develop contractual relationships with producer groups who commit to these regional or national networks in exchange for stable, lucrative prices.

4. Reforming fiscal instruments

Some of the CAP’s more technical adjustments, upon which we will not elaborate here, are also necessary in order to implement the principles and modalities of the discussed measures. Therefore, the CAP’s annual budget should be partially reappraised. If one of the main objectives of this policy is to overcome market imperfections - because they are structurally unstable and can change dramatically from one year to the next - it becomes clear that financial resources for intervention should be able to adapt over time.

Multi-year equalization and deferred saving and spending mechanisms as well as economic adjustment mechanisms, from the participation of member states to CAP financing, must be devised so that over time, resources can be adjusted to financing needs.

Conclusion: Putting agriculture’s sustainability at the heart of the CAP

• A CAP that combines effective market regulation tools, security risk management and producer organization.
• A CAP that is efficient in the production of agricultural goods and food as well as environmental and rural services.
• A CAP that tries to maintain agricultural employment and the agri-food and rural employment generated in all regions.
• A CAP which encourages the production of value-added and its fair distribution within the sectors and which pays for ensuing public good and environmental services.
• A CAP that maintains the food consumption of the poor and develops a nutritional dimension, particularly in catering.
• A CAP that is flexible, with an adaptable budget in function of economic developments.
• A CAP that has the financial means of its ambitions.

1 http://www.academie-agriculture.fr/mediatheque/seances/2010/20100414communication2_integral.pdf
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Paris, 18 April 2014