Discusses the context and drivers for the reform of the Common Agricultural Policy post 2020 and gives a preliminary assessment of the Commission proposals

1. THE CAP POST 2020 AND
THE ROAD AHEAD
Presentation to 162nd EAAE Seminar, Budapest, Hungary
“The evaluation of new CAP instruments: Lessons learned and
the road ahead
April 26 2018
Alan Matthews
Professor Emeritus of European Agricultural Policy
Trinity College Dublin, Ireland
alan.matthews@tcd.ie

2. Two processes
• Preparation of the next long-term EU budget framework,
the Multiannual Financial Framework (MFF)
• The CAP Communication on the future of food and
farming after 2020 and legislative proposals.
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3. Where we are
• Nov 2017 Commission Communication ‘The Future of
Food and Farming’ + accompanying papers
• Public consultation and CAP conference “Have your say”
• AGRIFISH Council Presidency conclusions Mar 2018
• European Parliament resolution June 2018
• 2 May 2018 Commission MFF Proposal
• Reflections Paper on future of EU finances
• European Council (EU27) Leaders’ Agenda discussion Feb 2018
• European Parliament resolution March 2018
• Commission CAP legislative proposals + impact
assessment Early June 2018
• European Parliament elections May 2019
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4. Outline
• The context for the next CAP reform
• Proposals in the Communication
• Some reflections on the road ahead
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5. Strong economic recovery, but storm clouds
ahead….
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6. Risks to global trade
• Growing resort to protection
• Danger of a trade war in response to US actions
• Stalemate in the WTO negotiating function
• Danger of breakdown in WTO dispute settlement function
• And, from the EU perspective particularly, Brexit…. !
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7. Brexit and EU agriculture
• Brexit will impact on EU agriculture through various
channels
• Budget, market, decision-making, …
• Trade on ‘WTO terms’
• Imposition of tariffs
• Potential loss of preferential trade transfers (depending
on future UK agricultural trade policy)
• Customs clearance costs
• Regulatory compliance costs
• Fiscal (VAT and excise) implications
• Additional road haulage barriers
• Irish border and transit issues
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8. Implications of Brexit for agrifood trade flows
• General principles
• In a Vinerian framework, Brexit leads to trade destruction (between
UK and EU27) and trade diversion (in favour of third countries)
• Trade flows can, in addition, be influenced by future changes in UK
agricultural trade policy and UK/EU agricultural policies as well as
by macroeconomic effects (changes in expected future GDP levels,
exchange rates)
• Challenges facing empirical work
• Specifying default tariff scenarios, including TRQs
• Calibrating likely size of non-tariff barriers
• Goods assumed homogeneous at the tariff/product level
• Difficulties in taking account of rules of origin constraints which may
nullify tariff preferences
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9. Implications of Brexit for agrifood trade flows
• Studies to date
• LEI Wageningen UR for UK National Farmer’s Union (van Berkum et
al. 2016) – UK only (MAGNET CGE model)
• Donnellan and Hanrahan, 2016 – IE impacts, ad hoc modelling
• Davis et al. 2017 – UK only, FAPRI-UK PE model
• Bellora et al. 2017 – EU impacts, CEPII MIRAGE CGE model
• Yu et al 2017 – UK and DK impacts, GTAP CGE model
• Freund et al, 2017 – DE impacts, GTAP CGE model (incomplete)
• Copenhagen Economics, 2017 – IE impacts, CGE model
• Van Berkum et al, 2018 – UK and NL impacts, AGMEMOD PE model
• Results
• Greater protection for import-competing sectors, loss of
competitiveness for exporting sectors, increase in UK farm value
added, small decrease in EU farm value added
• Ireland the EU country most adversely affected
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10. The draft WithdrawalAgreement
– Part IV Transition
• Set to last until 31 Dec 2020
• UK will not be a MS after exit date (29 Mar 2018)…
• … but Union law will apply in UK as if it were a MS during
this period
• … and UK will not participate in EU decision-making or
institutions
• UK can negotiate, sign and ratify international agreements
provided they do not enter into force until after exit date
• Trade agreements !!
• Specific arrangements for fisheries
• Specific arrangements for CAP direct payments
• ECJ will have continued jurisdiction
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11. Future trade relationships
• UK position rules out a customs union and membership
of the single market
• EU has offered FTA ‘provided sufficient guarantees on a
level playing field’
• Difficult negotiations ahead on framework of future
relations, including how to address Irish border issue
• Agreement and ratification still uncertain
• Withdrawal Agreement will be introduced as primary legislation in
UK Parliament – will it be amended?
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12. EU trade agreements and agriculture
• Despite the negative outlook for global trade, the EU has
an ambitious FTA agenda
• Overall gains, but some sectors exposed to greater
competition
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13. Prices to remain at or below current prices in
real terms
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14. Market and income developments
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15. Slowing productivity growth
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16. 16
Source: USDA, International Agricultural Productivity Database

17. DG AGRI TFP index, 2005=100
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Source: DG AGRI, CAP Context Indicators, Productivity in EU Agriculture, EU Agricultural Markets Briefs
No. 10 Dec 2016

18. Europe 2030 – Sustainable Development Goals
• EU fully committed to implementing 2030 Agenda for
Sustainable Development and the 17 SDGs
• SDG 1 "End poverty in all its forms everywhere",
• SDG 2 "End hunger, achieve food security and improved
nutrition and promote sustainable agriculture",
• SDG 3 "Ensure healthy lives and promote well-being for all at
all ages“
• SDG 12 "Ensure sustainable consumption and production
patterns"
• SDG 13 "Take urgent action to combat climate change and its
impacts"
• SDG 15 "Protect, restore and promote sustainable use of
terrestrial ecosystems, sustainably manage forests, combat
desertification, and halt and reverse land degradation and halt
biodiversity loss"
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19. Juncker Commission priorities
• “boosting quality employment, growth and investment;
• harnessing the potential of the Energy Union, the
circular economy and the bio-economy while
bolstering environmental care and fighting and
adapting to climate change;
• bringing research and innovation out of the labs and
onto the fields and markets;
• fully connecting farmers and the countryside to the digital
economy; and
• contributing to the European Commission's agenda on
migration.”
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Source: Commission Communication, Future of Food and Farming, 2017

20. Future of the CAP budget (1)
• Commission’s approach
• Two financing gaps in budget of around €160
billion
• UK exit leaves gap of €13 billion on revenue
side
• New priorities require €12.5 billion on
expenditure side
• Commission proposes to close gap with €9
billion of savings and €16.5 billion new money
• Implication is cuts of 5-10% in CAP and
cohesion funding
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21. Future of the CAP budget (2)
• Maintaining value of direct payments in
nominal terms means savings of 5-6% in
real terms in CAP budget
• With slightly greater cuts in cohesion
spending, CAP budget can be maintained
in nominal terms
• Big question mark is whether Member
States will agree to increase their gross
contributions by around 10%
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22. Other issues in MFF proposal
• Relative shares of P1 and P2
• Flexibility between Pillars
• Capping of support to large farms?
• Future of greening payment share 30% P1
• Other maximum or minimum ceilings
• Future of crisis reserve
• Possible performance reserve?
• Links to Research budget FP9?
• Relationship between CAP Strategic Plans and ESIFs
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23. Arguments in favour of co-financing Pillar 1
payments
• Ownership and efficiency
• Symmetrical incentives
• Recognition of EU value added
• Freeing up EU budget resources
• Would lead to redistribution from richer to
poorer Member States that would need to
be addressed in overall MFF context
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24. 24

25. Objectives of the future CAP - Modernisation
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To make better use of research and innovation
To foster a smart and resilient agricultural sector
- A fair income support to help farmers to make a living
- Investing to improve farmers' market reward
- Risk management
To bolster environmental care and climate action and to
contribute to environmental and climate objectives of the EU
To strengthen the socio-economic fabric of rural areas
- Growth and jobs in rural areas
- Attracting new farmers
To address societal expectations regarding sustainable food
production

26. EU agriculture dependence on payments
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-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Europerfarm
Farm income depending on market factors
Farm income depending on other payments
Farm income depending on direct aids
Source: Own calculations
based on FADN data

27. The future of direct payments
• Direct payments will continue…
• Though entitlements system may become optional
• … but should be better targeted
• Compulsory capping
• Compulsory redistributive payment
• Is it enough to improve ‘fairness’ of these payments?
• They are not well targeted, they are capitalised into
land values, they create problems for young farmers
to acquire land
• Allow Member States to limit payments to those over
normal retirement age
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28. 28
Source: Eurostat
Land rents up 4 times
Land prices up 5 times
In last 10 years
Two-thirds land rented
Accession

29. The Communication – new greening
architecture
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Source: DBV presentation to CDG Direct payments March 2018

30. Objectives of the future CAP - Simplification
• ‘Big idea’ of this reform is a new delivery model with
much more flexibility and responsibility for Member
States
• EU will focus on WHAT is to be achieved, not HOW
to do it
• The new delivery model – many questions
• What and how will targets be set?
• The approval process for CAP Strategic Plans?
• The evaluation process for CAP Strategic Plans?
• What sanctions if any if targets are not met?
• What minimum requirements to receive direct
payments?
• How to avoid distortions of competition?
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31. New division of labour
• EU: defining the basic policy framework
• Objectives
• Portfolio of measures
• Basic EU requirements
• Member States: develop policy configuration
• Configure measures
• Create compliance framework for beneficiaries
• Identify indicators and set targets
• Choose appropriate delivery instruments
• Performance anchored at MS not beneficiary level
• Appropriate ex ante conditionalities
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32. What Member States will do
• Needs analysis against common objectives
• Definition of targets and indicators
• Choice among broad types of intervention set out in EU
basic acts, in line with appropriate EU criteria (e.g. basic
EU requirements, budgetary allocations)
• Define eligibility rules at the level of the beneficiaries
(including mandatory elements in new conditionality)
• Set up monitoring, management, control and penalty
systems, respecting EU-level requirements
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33. Tracking progress
• High level impact indicators linked to EU specific
objectives
• Target levels (result indicators) by specific objective and
their indicative breakdown by year defined in CAP
Strategic Plan
• MS report annually on progress on result indicators and
distance from targets
• Where relevant, MS take action to address shortcomings
following review by Commission
• Reimbursements made by Commission on the basis of
output indicators
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34. 34
EU Specific objectives Impact indicators
Support viable farm income and resilience
accross the EU territory
I. 1. Reduce farmers' income variability
I.2 Support viable farm income: Development of agricultural income level by sectors
(compared to the average)
1.3 Contribute to territoral balance: Agricultural income in areas with natural
constraints (compared to the average)
Increase competitiveness and enhance market
orientation
I.4 Increase farm productivity: Total factor productivity
I.5 Harness Agri-food trade: Agri-food trade
Improve farmers' position in the value chain I.6 Improve farmers position in the food chain: Value added for primary producers in
the food chain
Contribute to climate change mitigation and
adaptation
I.7 Reduce GHG emissions from agriculture
I.8 Enhance carbon sequestration: Increase the soil organic carbon
Foster sustainable development and efficient
management of (natural) resources
I.9. Reduce soil erosion: Percentage of land in severe soil erosion
I.10. Improve air quality: Reduce NH3 emissions from agriculture
I.11. Reduce nutrient leakage: Gross nutrient balance on agricultural land
1.12. Improve water quality: Average concentration of Nitrates in ground water
I.13. Reduce pressure on water resource: Water Exploitation Index
Preserve nature and landscapes I.14. Protect birds: Farmland Bird Index
I.15. Increase biodiversity: Share of UAA covered with landscape elements
Attract new farmer and facilitate their business
development
1.16. Attract young farmers: Number of new farmers
Promote employment, growth, social inclusion
and local development in rural areas (including
bio-economy)
I.17. Contribute to jobs in rural areas: Employment rate in predominantly rural areas
I.18. Contribute to growth in rural areas: GDP per head in predominantly rural areas
1.19. Reduce income disparities: Distribution of Agricultural Income
1.20. A fairer CAP: Improve the distribution of CAP support
I.21. Promote rural inclusion: Poverty index in rural areas
Address societal expectations on food and
health
I.22. Limit antibiotic use in agriculture
I.23. Reduce the use of pesticides
1.24. Respond to consumer demand for quality food:Value of production under EU
quality schemes (incl. organics)

35. Examples of indicators – farm viability
• Result indicators
• Share of UAA receiving income support & subject to conditionality
• Share of farmers using risk management tools
• Share of farmers benefiting from coupled support within targeted
sectors
• Share of farmers with support for advice, training and knowledge
exchange
• Share of farmers with investment support
• Output indicators
• No. of CAP support beneficiaries
• No. of hectares receiving DP payments
• No. of farmers covered by risk management measures
• No. of hectares/livestock receiving coupled support
• No. of farmers given advice
• No. of supported investments
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36. Observations on the NDM (1)
• No quantitative targets at EU level, only orientations
• How to align MS needs assessment with EU priorities?
• SWOT analysis of all CAP specific objectives required, even if no
support is provided in the CAP Plan
• CAP Plan targets should be justified on the basis of the needs
assessment
• CAP Plan will be drawn up in cooperation with partners specified in
the Common Provisions Regulation
• Commission approval process
• Much (most) of the action on impact indicators is due to
regulatory measures, not the CAP
• Will be integrated into CAP through new ‘conditionality’ (GAEC
approach)
• Commission concern to avoid ‘gold-plating’
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37. Observations on the NDM (2)
• Long time lags mean impact indicators will play limited
role in performance monitoring
• Promise that the new conditionality will have higher
environmental and climate ambition compared to both
cross-compliance and greening – how achieved?
• Temptation for Member States will be to opt for ‘easy’
instruments – limited administrative competence in some
MS
• Limited involvement of outside expertise in developing the
new CAP delivery model
• Likely delays in implementing the new CAP may well be a
blessing in disguise!
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38. Thank you
Follow capreform.eu for further analysis
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