Winners and losers of the next CAP reform

Valentin Zahrnt , 22 July 2009

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The political economy explanations of agricultural protectionism traditionally look at the ability of the beneficiaries of protection at the sectoral level – farmers, land owners, downstream industries, and upstream industries – to exploit an unorganised majority that foots the bill as taxpayers and consumers. But the influence of the traditional farm lobby is receding. Farmers find it increasingly difficult to agree on a common position. The dividing lines are many – Swedish farmers have little in common with their French colleagues, “horn” competes with “corn”, small-scale farmers complain about large-scale farmers who traditionally dominate farm federations, young farmers are more open to change than their elder peers, and organic producers disagree with conventional producers. As a result, the European farm federation Copa-Cogeca is stuck with rigid positions and unable to connect to the mainstream policy discourse.

In the EU, things are, once again, more complicated (Daugbjerg and Swinbank 2008, Garzon 2006, Swinnen 2008). One peculiarity is the role that the “multifunctionality” of agriculture is playing in policymaking. Claims that agricultural subsidies are needed for food security and safety, animal welfare, environmental protection, landscaping, and rural development succeed in justifying subsidies that have significant effects on farm incomes but contribute little to the provision of public goods related to agriculture.

Another idiosyncrasy is the EU’s institutional structure that creates an inter-state distributional obstacle to reform in addition to the traditional inter-sectoral dimension. In net-beneficiary countries, the national interest in receiving EU funds coincides with strong political pressure by farmers (and the agricultural ministries they generally have captured), creating staunch opposition to reform in the Council. Erroneous expectations exacerbate this phenomenon. Those member states who get a large share of the pie believe that they can hold on to it forever, and those who receive less want, above all, to enlarge their share. As a result of this optimistic greed, most agree that the subsidy cake should be big.

Such inter-state distributional issues will be much more visible in the run-up to the post-2013 CAP than in the past. Traditionally, national receipts of CAP subsidies were determined indirectly as member states profited differently from EU-wide intervention prices and production support. But now CAP payments are increasingly being distributed through national envelopes, that is, entitlements to CAP funds which the member states can then spend with some discretion.

Eastern European governments are pushing for a redistribution of CAP payments and a move towards a flat(ter) rate of farm support throughout the EU. To find out who really stands to win – or to lose – from CAP reform, the European Centre for International Political Economy (ECIPE) has estimated the future distribution of CAP subsidies. The study reveals surprising differences between the negotiating positions that countries traditionally adopt and the payments they can expect from reform.

To address the sensitive issue of inter-state subsidy distribution, member states will first have to agree on the objectives of the CAP. Arguing that promotion of environmental public goods is likely to become the priority of the future CAP, the study defines criteria for the distribution of CAP payments. Most simply, countries with a large agricultural area will need more money to preserve landscapes and promote environmentally friendly farming. But not all landscapes have the same environmental value. Therefore, countries should be rewarded if they commit to respecting the strict environmental safeguards of the EU’s Natura 2000 legislation. The more terrestrial areas to which they grant Natura 2000 status, the more support they should receive from the EU. The same rewards should apply to organic farming areas. And forestland also deserves attention. The importance of responsible forest stewardship is increasingly being recognised. Member states with significant forest areas should obtain additional payments to enhance the environmental value of their forests.

The final step is to give each of these criteria a weight in the distribution of CAP payments. Moreover, remaining payments that are not targeted at environmental protection, such as the Single Farm Payment, need to be distributed. ECIPE has calculated three scenarios for the post-2013 CAP. In the first scenario, old entitlements heavily influence future distribution, and little money is dedicated to environmental protection. Accordingly, it is labelled “conservative”. In the “area-focused” scenario, more money is earmarked for environmental protection and agricultural area plays a key role in the distribution. The “multifunctional” scenario also assumes a strong emphasis on environmental protection. It assigns particular weight to Natura 2000 and organic farming areas.

Table 1. Scenarios for the distribution of CAP payments after 2013

Source: ECIPE study; 2015 data for Bulgaria and Romania

The results show that several traditional defenders of the CAP are indeed likely to lose from reform – France, Greece, Ireland, and Belgium. Other countries that defend the status quo would – surprisingly – gain from reform. This is especially striking in the case of Spain, which would reap the greatest absolute gains of all member states. Finland would get the third highest increase under all scenarios just after Sweden and Latvia. For both countries, the benefits of bolder reform would be greater. To a lesser extent, this also applies to reform-averse Portugal and Austria.

The Eastern European member states are very heterogeneously affected. The Baltic republics stand to gain substantially from CAP reform, most so under the ambitious multifunctional CAP scenario. All other Eastern European member states can expect to gain only moderately (except for Romania in a scenario that heavily compensates agricultural area) – or even risk losing.

References

Daugbjerg, Carsten, and Alan Swinbank. 2008. “Curbing Agricultural Exceptionalism: The EU's Response to External Challenges”. World Economy 31 (5):631-652.

Garzon, Isabelle. 2006. Reforming the Common Agricultural Policy: History of a Paradigm Change. Houndsmills: Palgrave Macmillan.

Swinnen, Johan F. M., ed. 2008. The Perfect Storm: The Political Economy of the Common Agricultural Policy. Brussels: CEPS.

Zahrnt, Valentin. 2009. “Public Money for Public Goods: Winners and Losers from CAP Reform”, ECIPE Working Paper No. 08/2009.

Topics: EU policies
Tags: Agriculture, CAP, EU reform, Political Economy

Research Associate at the European Center for International Political Economy