Is Europe losing touch with reality?

Stefan Tangermann

Is Europe losing touch with reality? One might think so given the surprise Greek decision to hold a referendum on the austerity package. The fear of contagion is very real and if the euro is confined to a small core of northern member states, the single market project will be undermined. One of the main justifications for creating the euro was the need to avoid competitive devaluations between member states.

It also ended the nonsense of green money, now largely forgotten, but one of the more bizarre and distorting aspects of the CAP (which is saying something). Somewhere in Brussels we should have a sculpture commemorating the switchover mechanism as an awful warning.

However, it is also a question that leading agricultural economist Stefan Tangermann has posed in relation to the CAP reform proposals announced last month.

The former OECD director for trade and agriculture argues that the reform proposals do not reflect the economic realities that Europe currently finds itself in. It is unfortunate that the policy planning calendar dictates that the European Commission must make vital decisions on the CAP through to 2020 but Tangermann claims the proposals fall short of an adequate response to perhaps the biggest crisis the trading bloc has ever faced.

But he is not alone in his criticism of the reform plans. It appears that dissatisfaction with almost every aspect of the proposals is rife and MEPs were given the opportunity to vent their frustrations at the Special Committee on Agriculture (SCA) meeting in Brussels last week.

In stark contrast to farm commissioner Dacian Cioloş’ assertion that the reform proposals would simplify the various administrative mechanisms within the CAP, MEPs claimed that the European Commission’s proposals for CAP reform are costly, complex and fail to distribute fairly between member states.

Ciolos is in danger of being seen as the least effective farm commissioner since Réne Steichen who was also seen as a trojan horse for France. Like Ciolos, he was educated in France but at the end of the day he turned out to be somewhat less beholden to France than expected.

The European Parliament is also concerned about moves by national governments to cut almost €500 million from CAP spending in 2012 last week. Instead, they re-affirmed their backing for the European Commission’s draft budget plan issued in April, which proposes a 2.3 per cent CAP budget rise within a wider 5.2 per cent year-on-year increase in commitments.

This is, of course, a dangerously nonsensical proposition against the background of serious budget deficits in Europe. If there is a collapse of the eurozone it will look even more so.

'Greening' measures prove controversial

The 'greening' measures proposed in the Commission's CAP reform plans attracted criticism from several countries at last week's Farm Council in Luxembourg.

Defra secretary Caroline Spelman argued that the measures to take 7 per cent of land out of production amounted to a return to set aside. There was too much focus on taking measures in Pillar 1 rather than proven approaches in Pillar 2: Pillars

The Commission maintains that the measures are aimed at marginal land, but it does seem to be a rather blunt policy instrument. Having said that, not everything done in Pillar 2 has been cost effective by any means.

CAP reform proposals have no friends

The Commission's proposals for the reform of the CAP have not gone down well in any quarter and have managed to draw fire from Britain and France: Reform

Of course, it was ever thus and one is never going to devise a reform that is welcomed in all quarters. However, Franz Fischler as commissioner had a new vision for the CAP which was more adjusted to contemporary realities. He also showed great subtlety in the tactics that he used to secure some real changes in the CAP, albeit that much was left to be done.

One suspects with the present reform that it very much 'business as usual' with some greening at the edges. It is far from clear that the 'greening' element has been well designed and will actually achieve its aims and here the French have a point.

Similarly, the capping of payments has a populist appeal as it seems to target 'fat cat' farmers, but once again it reflects the confusion and uncertainty that surrounds what the real objectives of the CAP are. Is it a social policy, is it about food security or is it about a competitive and efficient agriculture? One doubts whether it is about the last objective.

No great suprises in CAP reform proposals

There are no great surprises in the widely leaked Commission proposals for reform of the Common Agricultural Policy released today: CAP reform

Also, not surprisingly, UK ministers have criticised the proposals as inadequate.

The reform proposals have been overshadowed by the eurozone crisis which has understandably been dominating the EU agenda and media discussion. Its outcome will shape the future of the EU.

However, whatever shape the future eurzone takes, it is likely that budgetary pressures will ultimately play a substantial part in influencing the outcome of the CAP reform discussions.

CAP reforms 'turning clock back'

Farm minister Jim Paice has luanched an outspoken attack on farm commissioner Dacian Ciolos, accusing him of 'turning the clock back' in his proposals for CAP reform.

Paice was addressing a fringe meeting at the Conservative Party conference. He hinted at disappointment that the efforts that he and secretary of state Caroline Spelman had made to build relationships in Europe had not paid off.

Read more here: CAP reform

Dual blast on CAP from Court of Auditors

The Court of Auditors has delivered a dual blast at the CAP. The first report considers the £2.5bn of spending a year on agri-environmental schemes. It argues that poor design makes it difficult to assess the extent to which agri-environmental schemes achieve their goals: Agri-environmental

The Court found that objectives set by the member states were numerous and not specific enough for assessing whether or not they have been achieved. Although the environmental pressures are identified in rural development programmes, they cannot be easily used to provide a clear justification of agri-environmental payments.

There were considerable problems about the relevance and reliability of management information. In particular, very little information was available on the environmental benefits of agri-environmental payments.

The report is significant given the declared intention to 'green' the CAP in the next stage of reform.

In a report just released the Court has criticised the mechanism used by the European Commission to recover undue payments made under the EU's €55 billion-a-year Common Agricultural Policy (CAP): Recovery

The ECA found that 90 per cent of the amounts listed as recoveries in the EU's annual accounts represented reimbursements from national budgets rather than actual recoveries from CAP beneficiaries. Its report says that while this approach protects the financial interests of the EU, it diminishes the deterrent effect of recovery from beneficiaries.

Following an earlier report in 2004, changes implemented in 2006 had improved matters by providing more accurate information and greater detail on debts and recoveries at member state level. However, the system had certain shortcomings such as running the risk of encouraging the write-off of debt as early possible or reporting debt as late as possible.

There were also, not surprisingly, variations in the conduct of member states. This meant that debts were recognised at different times, reported figures were not comparable, interest was applied inconsistently and the point in time at which debts could be witten off varied significantly. All of this had a negative financial impact on the EU budget.

OECD calls for farm subsidies to go

The OECD is arguing that currently relatively high farm prices provide a window of opportunity to scrap farm subsidies: OECD

If only it were so, but the underlying politics does not permit it. Farmers will point out that input prices have also risen and mobilise food security arguments to justify the need for subsidies. Veteran Farmers Weekly columnist David Richardson is even waving the threat of food rationing in the latest attempt to alarm politicians and consumers.

In fact the rise in commodity prices has reduced the share of farm incomes that comes from subsidies. Across the OECD countries this fell from 22 per cent in 2009 to 8 per cent in 2010. It is consistent with a long-term declining trend.

This is not because subsidies have been cut in response to the fiscal crisis, but because of a reduction in countercyclical payments. Even so the 34 OECD member countries spent $277bn last year subsidising their farmers. Subsidies account for about 9 per cent of US farmers' income, but the figure is 28 per cent in the EU.

China has jumped on the subsidies bandwagon. The amount paid out last year went up to a record $147bn, an increase of 40 per cent on the preceding year. This pushed the share of Chinese farm income drawn from subsidies to 17 per cent, near the OECD average of 18 per cent. Direct payments to grain farmers in China have been consistently increasing since their introduction in 2004.

Britain and Poland have issued a joint statement calling for CAP reform and in particular less emphasis on Pillar 1. Poland joining the reform camp is a step forward, although it is interesting that one of the stipulations is a convergence of direct payments across the EU. See more here: Poland