Open Europe has today published a new report looking at the EU’s farm policy – the Common Agricultural Policy (CAP) – and how it could and should be reformed. As we set out in the report, the UK gets a bad deal from the CAP, contributing £7.1bn more than it gets back over the current EU budget period. At the same time, the subsidies it receives are spent in a way that actively channels resources away from areas and sectors that could generate the most economic or environmental benefits.
Short of entirely liberalising the policy, Open Europe has proposed a radical overhaul, linking subsidies to measurable environmental benefits, while allowing productive farmers to opt in or out of the scheme. At the same time, the overall CAP budget would be rationalised, reducing the UK’s contribution to the EU budget by £7.3bn over seven years.
The full report can be downloaded here, but these are the key points:
- On-going negotiations over the EU’s long-term budget provide an opportunity for the UK to reverse the serious poverty of vision that has characterised British diplomacy and government thinking on CAP reform for decades – but the window for doing so is quickly closing.
- The UK remains a big loser from the CAP. Between 2007 and 2013, the UK will contribute £33.7bn to the CAP and get back £26.6bn; a net contribution of £7.1bn. Per hectare, the UK receives £188, compared to for example France, Germany and the Netherlands which receive £236, £251 and £346 respectively.
- There remains no clear link between the wealth of a country and how much it receives from the CAP. Latvia, for example, gets £115 per hectare from the EU’s Single Payment Scheme – the least out of all member states – despite average farmers’ income being only 35% of the EU average. By contrast, wealthier member states such as Ireland and France continue to do well out of the CAP.
- Despite a series of reforms, the main ‘benefit’ of the CAP is that on the whole, it is less damaging than it used to be. Owing to its arbitrary design and contradictory aims, the CAP fails to meet its own objectives of delivering bio-diversity, boosting farmers’ competitiveness and promoting rural jobs and economic development.
- The share of the CAP spent on explicit environmental aims in the UK is only 13.6%. By failing to differentiate between different types of land, direct CAP subsidies actively channel public resources away from where they could create the biggest environmental gain.
- At the same time, by providing income support irrespective of whether any meaningful economic activity takes place on a farm, direct CAP subsidies often act as an outright disincentive for farmers to modernise, in turn locking in unviable business models and hurting Europe’s competitiveness.
- The cost to consumers and taxpayers across Europe of the EU’s farm subsidies and tariffs now stands at €86.9bn – of this €52.5bn stems from CAP subsidies. If, hypothetically, the CAP and other EU measures to protect farming, such as tariffs, were fully liberalised and the money freed up were re-channelled to more productive areas of the economy, it could be worth a boost in output equivalent to €139bn or 1.1% of EU GDP. Britain would experience a boost in output of €14.2bn or the equivalent of 135,000 full-time and part-time jobs.
- Full liberalisation of the CAP would be economically viable. However, given the widely held belief that that there is still a role for the state to play in delivering objectives such as bio-diversity, land management and R&D, such an option is most likely to gain political support.
- Therefore, we propose a pragmatic mix: a new, radically revamped EU farm policy, allowing for resources to be effectively allocated to both production and environmental benefits while better targeting jobs and growth. This would involve four steps:
1) The current CAP structure would be replaced with a system of agri-environmental allowances. Funding for member states would be allocated according to environmental criteria, such as bio-diversity, but be administered nationally. Payments could then be transferred between farmers depending on where the environmental gain is the greatest.
2) After complying with some minimum environmental standards, farmers would then be free to opt in or out of this scheme, with those farmers wanting to focus exclusively on production being free to do so.
3) EU-level funding for rural economic development should be limited to the poorer member states only, and be migrated over to the EU’s structural funds. Farmers should also be able to qualify for time-limited support from a fund similar to the EU’s Globalisation Adjustment Fund, targeted at making farmers more competitive and able to move into other parts of the economy.
4) A limited pot of money for agriculture related R&D should remain at the EU level.
- By simultaneously streamlining the CAP budget, such a system would reduce the UK’s contribution to the EU budget by £7.3bn over seven years.