Big cut proposed for CAP

Proposals for the EU budget between 2021 and 2027 from Charles Michel, president of the EU Council of Ministers, suggest that the CAP will receive €329bn over the next seven years. The budget or multiannual financial framework (MFF) is agreed to cover a seven-year period for all EU expenditure.

These proposals will be discussed by the heads of state in a full EU Council meeting in Brussels this Thursday and Friday.

This is because the wealth of EU countries has increased since the previous budget was agreed

In these latest proposals, the total MFF for the 2021-27 period will be €1,095bn, a slight increase on the total funding despite no longer having a UK contribution. This amount represents 1.07% of member states’ gross national income (GNI) and is actually a slightly lower percentage than it was in the previous 2014-20 MFF, where it was 1.16%. This is because the wealth of EU countries has increased since the previous budget was agreed.

What will be of particular concern to Irish farmers is that the pot of money to fund Pillar I and Pillar II payments to farmers is reduced to €329bn. This compares with €408bn in the 2014-2020 MFF for the EU 28 which is reduced to €383bn when the UK is excluded. This means the budget for farmer payments would be cut by 14% compared with the last time and that is before inflation. It also would bring the CAP share of the EU budget down to 30% – the lowest ever – and less than half the 73% of EU expenditure that the CAP represented in 1985 (Figure 1).

What else is in the proposal?

Aside from the cuts to the budget, the council president has outlined other elements of what he suggests should be in the next CAP.

The next CAP will be delivered under a single programming instrument for both Pillar I and II

These include capping of payments at €100,000, which will only affect a handful of Irish CAP claimants.

The next CAP will be delivered under a single programming instrument for both Pillar I and II and 40% of the expenditure is to be dedicated to climate action.

Pillar I will have a fund of €257bn, funded by the EU and talks of “new environmental architecture” to deliver “a higher level of environmental and climate ambition.”

This is a further reduction in Pillar II of €7.5bn from what was proposed by the Finnish presidency in December

Pillar II is reduced to €72.5bn and is targeted at the delivery of “specific climate and environmental public goods”.

This is a further reduction in Pillar II of €7.5bn from what was proposed by the Finnish presidency in December. Coincidentally, the Commission is proposing €7.5bn of “new money” for the Just Transition Fund. This fund is being created to fund the cost of delivering the Green Deal strategy which will require major changes in generation of energy away from coal and, in the case of Ireland, turf.

It is proposed that convergence between countries will bring all member states up to 90% of the EU average payment.

Other proposals

The debate on funding the next MFF has been ongoing for almost two years. At the start of June 2018, then European Commissioner for Agriculture Phil Hogan presented the Commission’s proposals for the next CAP costed at €365bn or a 5% cut on a budget of €1.135bn.

Given the opposition by a group of northern European member states to any increase in contribution to the EU budget

The EU Parliament’s proposal was that the current CAP budget be maintained at €383bn for the EU 27 but in an overall budget of €1.324bn or 1.3% of GNI.

Given the opposition by a group of northern European member states to any increase in contribution to the EU budget, this level of budget is always optimistic.

IFA reaction

IFA president Tim Cullinan said that the proposals would be a devastating blow for Irish farmers as well as rural Ireland and called for them to be rejected by An Taoiseach Leo Varadkar at the European Council.

There may be a temptation to conclude that this is just another proposal of many in a long-running process.

However, given the time constraints and that the debate has been running for almost two years, it is clear that we are in the MFF endgame, and while this may not be the final version it is likely to be close.

Once the heads of state agree the budget, it then has to be approved by the EU Commission and Parliament. This negotiation or trilogue involves further arm wrestling and no doubt the Parliament will be pushing for movement in its preferred direction of a bigger budget.

There is also the issue of convergence within member states

Ultimately, however, it is national governments that control finances and while the Parliament could block a budget, in theory, it is unlikely that they would in practice.

There is also the issue of convergence within member states – the Commission has proposed 75% while the agriculture committee of the Parliament wants 100% by 2027.

Currently, Ireland receives €1.21bn annually in Pillar I income support direct payments and a further €304m for rural development payments, such as GLAS and ANC, which are then topped up by a further €300m from the national exchequer.

If the cut was applied to Ireland on the same scale as to the overall budget, it would mean a decrease of 10% to direct payments

The same architecture will be retained for the 2021-27 CAP but with greater member state involvement in allocation of the money between Pillar I and Pillar II and defining what a genuine farmer is.

If the cut was applied to Ireland on the same scale as to the overall budget, it would mean a decrease of 10% to direct payments and a massive 24% reduction for rural development schemes.

This would reduce Irish CAP funding from €1.82bn to €1.55bn.

Applying this to the average CAP payment of €14,400 to Irish farmers, split into €10,000 in direct payments and €4,400 in scheme payments that is received by Irish farmers, it would be cut by €2,056 to €12,344.

The Common Agricultural Policy, or CAP, was the first common policy developed between the original six EU members in 1962, becoming nine when Ireland, the UK and Denmark joined in 1973.

Its purpose at a time of food scarcity in Europe was to encourage farmers to provide a stable supply of affordable food for EU consumers.

First reforms

That was achieved and by the mid-1980s huge surpluses were being produced, especially in dairy, beef and wine because the EU bought surplus production at a generous price and stored it in intervention.

The EU stopped buying of beef into intervention as a market support and replaced it with a coupled payment for livestock

Milk quotas were introduced to curb dairy production and, in 1985, 73% of the EU budget was spent on the CAP. The first major reform was brought in by European Commissioner Ray MacSharry in 1993. The EU stopped buying of beef into intervention as a market support and replaced it with a coupled payment for livestock and an area aid payment for cereals linked to production.

Decoupling of payments

Coupled payments were replaced by a single farm payment under the Fischler reforms in 2005. This meant farmers were given a payment based on their output between 2000 and 2002 and output didn’t matter so long as the land was kept in good agricultural condition.

The policy of flattening payments to area-based continued in the current CAP and is particularly divisive

This was to comply with an agreement at WTO on not subsidising production and also included the removal of the EU paying export refunds to traders who sold agricultural produce in markets outside the EU.

The decoupled single farm payment was replaced with a direct income payment to farmers

The policy of flattening payments to area-based continued in the current CAP and is particularly divisive. It means taking money from intensive farmers with high outputs and relatively little land and giving it to farmers with larger areas of land, irrespective of their level of output, creating winners and losers.

The decoupled single farm payment was replaced with a direct income payment to farmers which could include a greening payment in turn for farmers complying with a series of environmental measures.

The CAP between 2021 and 2027 will be an integral part of the Commission’s “Green Deal” and is targeted at having 40% of payments based on environmental measures.

The biggest change of all, as the graph illustrates, is that support for farmers through the CAP is proposed to fall from a high of 73% to just 30% as the EU attempts to address the migration issue and reallocate money from food to weapons with more expenditure on defence.

The CAP has evolved from being a measure to provide a reliable affordable food supply for Europe to a measure to control how EU farmers farm their land.

Against this background of support, there was a fair deal in the EU calling the tune as it was very much paying farmers to play their tune

The decision to ban growth-promoting hormones in 1988 was without scientific basis but made on the precautionary principle.

However, the EU was providing huge market support later to develop into payments direct to farmers, controlling access to the EU market and providing subsidy for exports outside the EU.

Against this background of support, there was a fair deal in the EU calling the tune as it was very much paying farmers to play their tune.

As we enter the next budget between 2021 and 2027, it seems inevitable that the level of farmer support through the CAP will be further reduced

Since 2005, however, the level of CAP support to farmers has diminished but the EU rules on production have remained and indeed been enhanced. Additionally, the EU market is consistently devalued by granting increasing access to non-EU imports.

As we enter the next budget between 2021 and 2027, it seems inevitable that the level of farmer support through the CAP will be further reduced.

At the same time it seems inevitable that the EU will put further demands on farmers for reduction of pesticides, fertilisers and antibiotics as part of the Green Deal.

As long as the EU were providing adequate support for farmers through the CAP, it was reasonable that conditions were attached.

However, the opposite is also true, as the EU withdraws support, it also loses the moral right to dictate to farmers on production methods. The EU cannot have it both ways.